REPUDIATION!

Nelson Evening Mail, Volume LXIV, 21 February 1931, Page 8

REPUDIATION!

CANBERRA, 9th February

Tlie Premier of New South Wales (Mr Lang) proprosod to the Premier’s conference to-day the abrogation of payments of interest on overseas loans. He advocated repudiation in the frankest possible manner. It is understood that this policy was decided upon at a secret meeting of the New South Wales Cabinet last week. Within 20 minutes of the conclusion of Mr Lang’s speech the Prime Minister (Mr Scullin), the Federal Treasurer (Mr Theodore), and every other Premier present had completely dissociated themselves from Mr Lang s proposal. Unperturbed, Mr Lang announced that even if the Premiers’ conference refused Lo agree to his plan, the Government of New South Wales was determined to carry out as much of it as was applicable to any one State. The text of Mr Lang’s three proposals reads as foL low: —

1. That the Government of Australia decide to pay no further interest to British bondholders until Britain has dealt with the Australian overseas debt in the same manner as Britain settled her own foreign debt with America. 2. That in Australia interest on all Government borrowings be reduced to 3 per cent, 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 “the goods standard.” The Treasurer of Queensland (Mr Barnes) and the Premier of Victoria (Mr Hogan) joined in respectively moving and seconding the following motion: — (1) That each Government undertakes that its Budget shall be balanced within three years. (2) If during a financial year Budget indications should fail to be realised, immediate steps shall be taken to adjust the position. (3) That an appropriate monetary policy for the promotion of production shall be examined by the Commonwealth Bank Board and the Commonwealth Treasurer, with the recommendation that every effort should be made to prevent any further fall in wholesale prices and with the objective of effecting an improvement in those prices. (4) That the Commonwealth Treas- «- urer be authorised to discuss these proposals with the Commonwealth Bank Board and with representatives of trading banks, and to report back to this conference.

This resolution was passed with only one dissentient, the Nationalist Premier of Western Australia (Sir James Mitchell). Whether correctly so or not, the Federal Government interprets the passing of this resolution as a note of approval and sympathy of all States

DETAILS OF MR LANG’S POLICY DISCARDING THE GOLD STANDARD REDUCTION OF INTEREST EVENTS LEADING TO PRESENT SERIOUS POSITION

except Western Australia with Mr Theodore’s mission to the Commonwealth Bank.

It was unofficially stated to-night that the Government of New South Wales will proceed' to act upon (1) and (2) of this programme. The third part of the proposal is regarded as being beyond the scope of State competency. New South Wales will not pay its overseas interest commitments and it will take immediate action to reduce the rate of interest on internal State loans to 3 per cent. Doubts are, however, expressed, in the highest quarters of Mr Lang’s readiness to carry out this programme.

The conference will continue tomorrow, and will rise to-morrow afternoon. In the evening Mr Scullin and Mr Hogan will leave for Melbourne to attend the Labour conference, and the Premiers’ Conference will resume on Friday to hear Mr Theodore’s report of the bank negotiations. Mr Theodore left Canberra to-night for Sydney.

Mr Lang said:—“This conference has differed on many things, but it appears to be agreed on this point, that what is necessary in Australia is the restoration of public confidence. The complaint which the people seem to have is that they do not know what the Governments propose to do. One day it is suggested that there will bo inflation; the next day repudiation is in everybody’s mouth. It is not inflation that frightens the people; it is not repudiation which causes a stampede. What is disturbing the public mind is that there is no definite indication of what the Governments intend to do. From the information we have it is clear that Governments 'must immediately decide to reduce their expenditure, or publicly declare themselves bankrupt.

WAGE REDUCTION EXAMINED “There are two main factors in Government expenditure —wages and interest. Interest, according to the Niemeyer theory, must be sacrosanct, leaving only j wages to carry the burden. I propose to show that* wage reduction is not only a wrong policy, but that it is not by any means helpful in the solution | of our troubles. Supposing we reduced the wages of civil servants in New South Wales by 10 per cent. more. The saving in our expenditure would not amount to £1,000,000. Does anybody at this table suggest that our troubles are solved when we reduce our deficit from £8,000,000 to £7,000,000? If New South Wales between now and June paid no more salaries —which means it would not pay its police, its asylum attendants, the amount of expenditure saved would not be equal to the deficit which is in sight. Practically every State in Australia in the last 12 months has gone in for wage reduction, and there is not a Premier at this table

who can say that lie will balance his Budget.

“Tlie other item which weighs heavily in Government Budgets is that of interest. In ordinary times the annual commitments of New South Wales under this heading were £8,000,000 overseas, which exchange rates have increased to about £0,500,000 this financial year, with every prospect of its going still higher. In Australia our interest ' commitments are £6,352,000 for the current financial year. To-day ii is impossible to meet those commitments —as impossible for New South Wales as it is for the Commonwealth or any other State. It is a burden that Australia cannot carry and one which she has no right to carry.

REARRANGING INTEREST PAY MENTS

“It should go forth from this con fcrcnce that the Australian States and the Commonwealth have decided upon a plan of reconstruction which would involve the funding of our foreign debt, both principal and interest, under conditions more suitable to existing circumstances; and the replacement for internal purposes at least of the inadequate gold standard of currency with one better suited to the times in which we live. The quickest and most permanent road back to prosperity is in the direction of rearranging our interest- payments both at home and abroad and discarding the gold standard for domestic purposes. If we could f;md our overseas debts under the same conditionals and at the same rate as Britain dealt with hers, then our troubles would bo solved. Surely it is only just that our British creditors should deal with us on the same terms as the United States dealt with Britain. A large proportion of the unemployed who are suffering to-day are returned soldiers. They made their sacrifice on the battle-field. They have now to make it all over again in Australia. To attempt to continue to carry the burden which the war has placed upon us is to compel not only those soldiers to go through 10 years more of misery, but also to impose upon the generation for whose freedom it was claimed the soldiers fought, a period of hardship and suffering which would never have been theirs had Australia remained out of the war.

“PENALTY FOR ENTERING WAR” “The position we have to face, shortly is this—whether hundreds of thousands of Australians are to go without the necessaries of life so that the international money-ring shall have its pound of flesh, or whether the British investor shall have repaid to him an amount equal in fact to the amount he lent. To continue paying overseas interest at the rate at which Australia has been paying it is to impose a penalty upon our country for having entered the war. If only half the number of millions which we are committed to pay away in overseas interest each year were distributed among the unemployed and among the farmers ,it would make a wonderful difference to conditions in Australia to-day. “For these reasons the Government of New South Wales has decided that an immediate rearrangement of our overseas commitments is the first step towards any solution of Australia’s problem. If we approach Australia’s difficulties from an Australian point of view, having regard only to what is fair and equitable to our creditors and just and honourable to Australia, then this proposal should appeal to the conference.

INTEREST TO AUSTRALIAN INVESTORS “The other burden which is hanging around the neck of the Government is interest payable to Australian investors. There is no item in the cost of production so great as rent and interest. The farming industry, now on the verge of bankruptcy, has been brought there not because of the cost of wages •—that has been infinitesimal—but because of the huge load of interest which the farm has to carry. Even the financial institutions admit that interest rates have reached ail impossible level. The leading bankers have said that they would reduce interest to-morrow if they could. The reason why they have not done so, they say, is that the Government rate of interest upon which the whole scale rests has been too high. Let us then reduce the rate of interest on Australian loans by half. II what the bankers say is true, it must follow that the interest due on every farm, from every factory, and out of every mortgage will automatically fall by half within a few days. It is an item on which the employer can make no saving at all. If wages get too high or orders become scarce, employees are dispensed with and a check put upon the outgoings. But of interest there no cessation.

“WORLD OUTGROWN GOLD STANDARD”

“Another aspect of the problem, which this conference will have to deal with, if it is to confer permanent benefit upon Australia, is the currency. The world has outgrown the gold standard. The only reason why we are on the gold standard to-day is because the Bank of England wanted it, not because it suited Australia. The restoration of this standard is perhaps the greatest blunder among the many that the Bank of England has made. The unfortunate part of it is that the agrarian countries, like ourselves and the Argentine, are being made the scapegoats. Wherever this gold standard operates it seems to have the same effect. In free-trade England and protectionist America cries are dominated not by production costs, but by the artificial movement of gold. When gold is produced in large quantities commodity prices fall, whereas in well-regulated society costs would bo dependent alone on production costs. The only certain thing that can be said for the gold standard is that in every instance where it has been asked to meet conditions slightly above normal it has collapsed. Whenever a financial crisis has been pending the first movement of Governments and bankers has been temporarily to get away from the gold standard.

SILVER STANDARD PROPOSED “Mr McKenna, the chairman of directors of tlie Midland Bank, recently told us that the gold standard had failed, and his colleague, Mr J. F. Darling, a director of the bank, has expounded his idea for a super bank for the Empire by giving silver an artificial price of 47d as against 14d a standard ounce to-day. He would find an equilibrium through raising the value of silver and backing it with gold. A silver currency would suit New South Wales at present, but why cannot the paper pound be our monetary unit? It could be purely a bookkeeping unit, based on the profit of Australia’s annual production, or, in other words, on the difference between the cost of Australia’s primary production, its grain, wool,

metals, meat, skins, hides, timber, fish, and fruit, as well as its secondary production, and its realisation of wealth. In fact, Australia’s annual profit on primary and secondary production would back our note issue, and that cannot be inflated or deflated, save in sympathy with the natural fluctuations resultant on the surplus or shrinkages between prolific and comparatively barren harvests. With that absolutely honest currency—for it is the only currency that cannot be debased, as its security is demonstrable —we would meet all our internal obligations. “As far as the gold standard is concerned for international purposes we would not suffer. Having paid our producers in Australia with our own currency wo could apply the whole of our revenue from our sales of surpluses overseas to the speedy amortisation of our external debt, save only the amount necessary to establish credits 1 for those manufactured goods or raw i materials that. Australia could not proi duce.

“This, then, is the comprehensive plan which I now submit to this conference. It is:—

“(1) That the Governments of Australia decide to pay no further interest to British bondholders until Britain has dealt with the Australian overseas debt in the same manner as Britain settled her own foreign debt with the United States. “(2) That in Australia interest on all Government borrowings be reduced to 3 per cent. “(,‘l) 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 the goods standard.

REDUCING DEPENDENCE ON OUTSIDE WORLD “If the conference agrees to these proposals it means that there will be released for circulation in Australia millions of pounds which are now sent overseas. This plan, if adopted, by giving new life to Governments and reviving industry, will cause a rapid absorption of the unemployed. Confidence in Australia will be restored, because her dependence upon the outside world will be reduced to a minimum. The Government of New South Wales has decided to adopt this policy where it applies, regardless of what the decision at this table may be, but I am hopeful that all the States of the Commonwealth will join us, and then Australia will be able' to say truly that at last the depression is lifting.”

MR THEODORE OPPOSES PLAN Mr Theodore said that if they could get all the parties concerned, including the bondholders, to agree to the proposals, the plan would be a solution of the main problem. In round figures Australia owed abroad about £500,000,000. That was the amount of its debt domiciled in Great Britain and the United States. Its war debt abroad now stood at about £82,000,000. The sum that Australia raised definitely for military purposes in direct arrangement witii the British Government amounted to £02,000,000. Some portion of that amount raised consisted of loans made by the British Government to Australia in the early stages of the war, and the remainder represented obligations undertaken by that Government on behalf of Australia to finance Australia’s military engagements abroad. The balance of the overseas debt was contracted by the various Australian Governments and Governmental authorities, with private bondholders in Great Britain and the United States. Mr Lang had spoken about the wisdom of securing for Australia an arrangement similar to that obtained by Great Britain from her creditors in regard to overseas debt contracted be- ( cause of the war. An arrangement of; the kind, if it could be made for Australia, would give tremendous relief. The British Government was the creditor of the European countries in connection with the war expenditure, and a debtor to the United States. As a result of conferences between the Governments of those countries funding arrangements were arrived at which considerably lightened the interest burden falling on Great Britain because of its war indebtedness to the United States. They had therefore a ease to put to Great Britain for the lightening of the burden of Australia’s war debt of £82,000,000, and the Prime Minister had recently been in negotiation with the British Government on the subject. But for Australia merely to state that it should not continue to honour any obligations heavier than that of Britain to the United States was to repudiate an obligation to the British bondholders. The most that could be hoped for was the bringing about of a funding of short-term indebtedness in London, which amounted to £38,000,000, and was bearing very heavily upon Australia. It was possible that by direct negotiations with the banks Australia might arrange for additional accommodation. By such a funding operation Australia would be relieved of ■ a very heavy immediate burden. The success of such an arrangement would probably restore confidence and give an easier borrowing market overseas, relieving the heavy burden of interest commitments for a year or two. As a result an improved market for Australian securities could be expected, and as Australian loans matured they could be renewed on easier terms. To get that there must be unity of action in Australia in the determination to stabilise finance. The Commonwealth and State Governments had contracted an internal debt of a little more than £500,000,000, and argument similar to that he had just used applied to that indebtedness. There was no one with whom a treaty could be entered into in Australia on behalf of all the bondholders who were domiciled here in order to efl'ect a reduction of interest. Internal bonds representing Commonwealth, State, municipal, and similar loans were discriluted among many hundreds of thousands of Australian financial institutions. The hcld<;is subscribed to the loans on appeals of the various GovcMimonts, and on the terms set out in the proipectuses, an:l they were ent'dW! to the fulfilment el the obligations entered into. IR thought that Australia could cope with the difficulty by restoring the value of the £1 to some basis tiiat represented an equivalent value of the £1 at the time that those people subscribed their money. By doing that nothing would be repudiated, nor would Australia be doing an injustice to the bondholders.

MR LANG’S POLICY NO'!' POSSIBLE

Mr Theodore added that Mr Lang had suggested the creation of a new currency and the abandonment of a gold standard currency. Frankly faciuii that position, it had to be acknowledged that the gold standard currency had already been abandoned in Australia. Not one of the Premiers would sav that the Australian notes in circulation could or would be redeemed in gold. He saw no practical advantage in destroying the existing system of

currency—on the contrary, lie saw grave disadvantages in the adoption of measures that would abolish it, with all the disturbance resulting from the inequitable treatment that would arise as between citizens and Governments by the establishment of a new currency. 'There was no necessity to do that. 'The position was desperate enough without their having to envisage tiie complete wiping out of the existing currency. Mr Lang had said that the proposal represented the policy of his Government, which it intended to put into operation. With all due respect to Mr Lang's intentions, he (Mr Theodore) ventured to say that Mr Lang could not put such plan into operation. It was not within his power to do so. He could attempt to put it into operation only at the risk of absolutely destroying credit both at home and abroad and of increasing tremendously the existing chaos. Should lie proceed to put his policy into operation the first step would be arbitrarily to induce the interest payable abroad on behalf of Now South Wales. Mr Lang was not the person who paid the interest of New South Wales, because under the financial agreement, to which New South Wales was a party, the Commonwealth was obliged to pay it. Did Mr Lang intend not to make available to the Commonwealth that portion of his revenue which, under the financial agreement, must be made available to the Commonwealth to enable it to carry out its part of the agreement? If that was his intention then he would become a defaulter to the Commonwealth. Obviously the Commonwealth could not continue to pay £1,300,000 a year on behalf of the States unless tile States provided what was necessary under the financial agreement. If one State decided to issue an ultimatium and say, “That is our view of the situation, and that is what we are going to do, no matter what other people do,” all would go down together. If what Mr Lang had said was his last word to the conference on behalf of New South Wales, then he had taken the first step towards a crisis that would involve everyone in Australia. He agreed with Mr Lang that their first duty was to succour their citizens—give them the means of sustenance. A quarter of a million men were out of work in Australia. They must get these men back to work again; they must treat the workers

fairly. They must not ask them to bear the major portion of the economic burden. If the Governments were actuated by a common desire to manage the country’s financial affairs in such a way that, while meeting their obligations and enabling industries to carry on without undue disturbance, prosperity would soon return.

MR SCULLIN*APPEALS TO MR LANG Mr Seullin said that Mr Theodore had spoken for the Commonwealth Government. He agreed with every word Mr Theodore had said. He agreed with a large part of what Mr Lang had said in his opening remarks about the seriousness of the position and the difficulties which confronted them. He believed that Australia could not make ils Budgets balance merely by cutting wages and salaries. He agreed also with Mr Hogan’s interpretation of the proceedings at the Melbourne conference. This conference of the Australian Governments had assembled to devise a plan for the financial rehabilitation of Australia. It was not his intention that such a plan should be thrust on the representatives of the other Governments by the Commonwealth Government, nor should they be tied down to any plan prepared for them by departmental officers. Rather should it jie a plan evolved by free discussion and mutually agreed upon by them as the heads of all the Governments. of Australia. On Saturday Mr Theodore had laid before them the broad out-

linos of si plan for their consideration, 11 was lacking in detail, certainly, hut that was unavoidable, seeing that delicate negotiations were in progress with the banking authorities in connection with the plan. Nevertheless he believed, and tlie Treasurer believed, that his proposal was one which if adopted would lead Australia back to prosperity. Mr Lang had now put forward certain proposals which, he said, represented the considered policy of his Government. Mr Scullin regretted that he had put forward that policy as something which his Government was determined to put into effect regardless of what was done at the conference.

Air McPlice. —Did he say that do finitely?

Air Scullin. —I hope he did not mean it that way.

Air Lang.—lt would not be fair for me to come to this conference allegedly prepared to negotiate when my Government had already come to a fixed decision. Air Scullin. —Of course we want complete frankness from every member of the conference.

Air Scullin said that when he arrived in England he was greeted with the announcement of the resolution passed by a small group in Sydney. It appeared in the newspapers under headings which streamed across the full width of the page. He was able to allay the uneasiness to a large extent by pointing out that the resolution did not represent any responsible body of public opinion in Australia —that it emanated from a small gathering of individuals who spoke only for themselves. Later he was able with great pleasure to quote Air Lang himself as having both before and after the election repudiated repudiation, and having stated that all obligations to bondholders would be honoured, as well as the Government’s obligations to the people. Destruction of confidence might lead to panic and chaos involving a financial crash, which would strike its heaviest blow at the workers. They would then have not 250,000 but 1,000,000 unemployed. Their obligation as Governments was to strain every nerve to lirevent default, and not to precipitate it. He made this appeal to Air Lang, and he joined with it an appeal to others at the conference.

AIR HOGAN SAYS PLAN UNTHINKABLE

Air Hogan said that he could not support Air Lang’s proposals. Alany of the statements Air Lang had made regarding the difficulties confronting the Governments were correct, and were appreciated by everyone, but some of them were not corect. He was amazed that Air Lang should say that most of tlie public debt of Australia was war debt. It was true that the war had cost Australia approximately £744,000,000, but only £072,000,000 of that amount was borrowed money. With regard to Air Lang’s statement that wo should cease to pay the overseas interest bill until there had been a rearrangement and funding of the overseas debt, Air Hogan pointed out that apart from the impracticability of the proposal there was this further fact that, if Australia did not pay people overseas what it owed them, would they in their turn pay what they might owe to Australia ? If' Great Britain refused to pay for Australian products because we had made default in our interest obligations, we would not be able to sell our primary products at all. In that case they would rot in Australia, because Australia could not consume them all. He felt sure that even Air Lang upon reflection would realise that the repercussions from his proposal would be so serious that they would make it unthinkable.

“WILL DISCREDIT AUSTRALIA FOR

ALL TIME”

Sir James Alitchell (W.A.) dissociated himself from every word and sentiment uttered by Air Lang. If tho policy enunciated by him were put into operation Australia would be discredited for all time in the eyes of the world, and untold suffering would be brought upon the people of this country.

“IMPOSSIBLE OF ACHIEVEMENT”

Air Hill (S.A.) said that in the first place Air Lang know that his policy was impossible of achievement. He could not present bis Budget and make provision in it for a reduction of interest rates of 3 per cent. He did not wish to differ from Mr Lang on any point, but any proposals that they made should be practicable. Did Air Lang propose to break away from the Federal financial agreement and to take over the obligations of New South Wales, which under the agreement had been transferred to tlie Commonwealth? Mr Lang.—l have no objection to that at all; in fact I desire it. Air Hill. —We all desire many things in this world that we are not able to get. The fact is that Air Lang knows that he cannot do what lie is proposing. Air Lang.—l do not know that at all.

Air Lang added that the policy had been arrived at long before this conference was thought of. Air Hill. —Quite so; hut may I assume that the New South Wales Government is prepared to consider a common plan agreed upon by all Governments ?

Air Lang.—The New South Wales Government will consider any plan to get the State out of its difficulties, but it does not propose to continue being dilly dallied.