In fact, the entire basis for the royal commission’s finding was the transfer of £13 000 to Theodore’s bank account from that of McCormack, who was publicly known to be a shareholder in the copper mine. Theodore never explained the reason for this transfer, which is certainly cause for suspicion. However, none of his political (or legal) opponents was ever able to provide any evidence linking this transfer of funds to the Mungana transaction. The payment to Theodore was made by crossed cheque, making it very easy to trace. We are entitled to conclude that two men as accomplished and experienced (and as street-smart) as McCormack and Theodore would not have been so stupid as to have conducted a corrupt transaction in such a transparent way, especially as there were plenty of more clandestine options. They were longstanding friends and political associates, so it is possible that McCormack was repaying an earlier personal loan from Theodore.
We are also able to conclude that the Queensland Government had entirely political motives for establishing the royal commission. The greatest support for this thesis is offered by the attorney-general in the Moore government, Neil Mcgroarty. In a move as corrupt by modern standards as anything Theodore did, Mcgroarty accepted a very large legal fee to run the civil prosecution against Theodore, even though he did so as attorney-general. When asked about this as he campaigned to hold his seat in the 1932 state election, Mcgroarty told a public meeting that he was worth what he’d been paid in that case: ‘Mungana smashed the Labor Party in Australia almost beyond mending.’22
This chutzpah on the part of the first law officer of Queensland was remarkable not only by the standards of the time, but even by the standards of today. The people of Queensland passed judgement. Even after the messiness of both the royal commission and the trial, the voters of Queensland removed the conservative government and installed a new Labor administration. And Mcgroarty lost his seat.
The temporary removal of Theodore from the Treasury portfolio sounded the death knell of the Scullin government. This was clearly the design of the conservatives in the Queensland Government, who were no doubt cheered on by their federal colleagues. The treasurer’s absence left a power vacuum at the government’s most senior levels. James Fenton, who replaced Theodore as acting prime minister, and Joseph Lyons, who became acting treasurer, did not have the imagination and policy capabilities to deal with the grave, unfolding economic crisis. And Scullin, never the strongest of leaders and now robbed of his deputy, was not able to provide the necessary leadership. Fateful decisions that were made during Theodore’s spell on the backbench, such as the reappointment of Gibson as chairman of the Commonwealth Bank, may not have proceeded if Theodore had been in office.
Gough Whitlam, writing forty years later, summed up the devastating impact of Theodore’s absence: ‘Theodore’s suspension as Treasurer was temporary but decisive. The consequences went beyond his physical loss of office for six months. There was a stunning loss of morale. The Scullin Government never recovered its nerve. Theodore never recovered his authority.’23
From the Backbench
It is difficult to see a silver lining in the Mungana affair. If there is one, it is that Theodore used his time in the wilderness not only to successfully fight the charges against him, but also to further develop an alternative to the prevailing economic orthodoxy, about which he had a deep-seated anxiety. He sought out economists both conventional and radical. It was in this period that Theodore became a Keynesian, before such a thing existed. From the backbench, Theodore opposed Lyons’ moves to further deflate the economy by sacking public servants and cutting back welfare. He also formulated a plan that he would seek to implement when he returned as treasurer.
A confluence of events put the new treasurer and the former treasurer on an unavoidable collision course, with Lyons embracing a robust agenda of attrition, expenditure and wages cuts, and tax rises, and Theodore consolidating his view that this course of action was highly counterproductive. This was not political opportunism on Theodore’s part. His opposition was built around a well-considered policy and imaginative framework, which Lyons simply did not have the capacity to develop himself. As Lyons’ biographer PR Hart argues, ‘Theodore was Lyons’ intellectual superior and as such able to comprehend new theories that alarmed Lyons’ more orthodox and cautious mind.’24
On 27 October 1930, Lyons outlined his agenda to the Caucus. It involved significant cuts in government spending, a 10 per cent cut in wages, and increased taxes, including a special tax on Commonwealth Government salaries and some expansion in credit. One can imagine Lyons’ trepidation when his formidable predecessor rose to attack his proposals. An amendment, seconded by Theodore, called on the Cabinet to instruct the Commonwealth Bank to create sufficient credit to finance the government and to provide £20 million in job-creating public works programs. The amendment was carried by twenty-six votes to fourteen.
Lyons’ position would have been untenable if this amendment had been allowed to stand. So Scullin, using his authority as party leader and prime minister, telegraphed the Caucus from London, where he was attending an Imperial Conference, to repudiate it. While the Caucus declined to do this, it did agree to delay consideration of the matter until Scullin’s return.
Like Lyons, Theodore had consulted widely with the respected economists of the day, including Lyndhurst Giblin and Douglas Copland. Any treasurer worth their salt spends time with economists outside the government’s ranks and draws on the best of academia in developing
