Bruce and Page presented the results of their negotiations to their respective parties as a fait accompli; both said they would resign their leadership if the deal was rejected. As it turned out, both parties endorsed the agreement, and Page was sworn in as treasurer at the age of forty-two, with the forty-year-old Bruce as prime minister. Theirs would be a long-serving activist government.
Towards a Central Bank and the Gold Standard Folly
One of Page’s key policies was that Australia needed a central bank. Here, the Labor Party and the Country Party were on a unity ticket. Both supported a central bank as a key development for a modern economy. The Nationalists, wary of dangerous interventionist notions like central banks, needed a lot more convincing, but Page would prevail in this argument.
Like so many other treasurers in Australia’s history, Page was influenced by his childhood when it came to developing policy. As he wrote:
[My] own awareness of banks and banking grew directly from the bank smash of 1893 when, as a boy of 12, I witnessed their foreclosure first hand on a visit to Sydney. On that day, fifteen banks, including some of the biggest institutions, closed their doors and thousands of their clients were ruined by the absence of a central banking institution.9
Page also referred to the importance of a central bank in times of economic difficulty when he introduced his banking legislation into the House of Representatives in 1924:
In troubles such as these, one would naturally look to bank authorities to find a way out or at least advise as to the remedies to be applied. But in fact there is no banking body which can be considered representative. Instead, we have a number of banks which though loosely associated for some purposes, scarcely can express a corporate opinion. Chiefly mindful of their own interests, which is natural, they can have no such regard for the public welfare, as is undoubtedly required.10
The reforms subsequently introduced by Page were tentative and incremental. The Commonwealth Bank, which had been founded in 1911 and had to date focused on providing funds for development and services to workers, was able to set and publish its interest rates. A Commonwealth Bank board was created, consisting of representatives of the various sectors of the economy. However, a proposed measure to force the private banks to place a set percentage of their deposits with the Commonwealth Bank—an important step on the road to becoming an effective central bank—was withdrawn after ferocious opposition.
While Page saw the introduction of more central banking powers as being an important reform for the long term, he was also hopeful that it would bring about a more immediate change in economic policy. In this, he was to be disappointed. The Australian Notes Board was to embark on a policy of reducing the amount of money in the economy to allow a return to Australia’s currency being linked to the gold standard, and this would have a significant impact, particularly in the agricultural sector.
The principle that the value of a nation’s currency should be backed by that country’s holdings of gold bullion had been an extremely longstanding one: the gold standard had existed in Great Britain since 1717. Adherence to the gold standard was seen among the West’s economic and political elites as a paragon of respectable policy as well as an important bulwark against the irresponsible impulse to print money to deal with economic problems, with all the inevitable inflationary consequences that this entailed. During World War I, however, Great Britain, Australia and the United States, together with the majority of the other Western nations, had left the gold standard, since the wartime governments needed to access finance and run deficits that were not compatible with restricting the amount of cash available to that which could be backed by gold.
After World War I, the drive among policy advisers for a return to the gold standard was representative of an emotional longing for a return to the economic strength of the prewar years in the English-speaking world, and especially in Great Britain itself. Even before the economic conflagration of the 1930s, Great Britain’s postwar economy was marked by struggling traditional industries such as coal and steel. The unemployment rate in Great Britain in the mid-1920s averaged around 10 per cent, but this masked much worse unemployment in traditional industrial centres such as Liverpool, Leeds and the north of England generally, as well as in Scotland and Wales. As historian Robert Rhodes James argues:
Mass unemployment tended to be explained by dislocation caused by the war and international trading arrangements. By this reasoning, the only hope for the dying former export industries lay in the restoration of the system which involved currency stabilisation by means of return to the gold standard and the elimination of tariffs.11
In Australia, the Treasury and the Commonwealth Bank both argued for a return to the gold standard. This met no resistance from Page or Bruce, as the move sat very comfortably with their conservative instincts. The Australian Government confirmed a return to the gold standard in March 1925. This was before Great Britain had resolved its own position on the standard, prompting John Hawkins to refer to the Australian resolution as arguably its ‘first explicit macro-economic policy
