Note: Where available, the PDF/Word icon below is provided to view the complete and fully formatted document
Thursday, 3 November 1927

Mr GREENE (NEW SOUTH WALES) . - I have listened with a good deal of interest to the two speeches that have been delivered this afternoon. I was somewhat pleased to hear the open confession which was made by Senator Need- ham that the real objective of the Labour party when it founded the Commonwealth Bank was the nationalization of credit, as they call it, in Australia.

Senator Hoare - The honorable senator has struck the nail on the head.

Mr GREENE (NEW SOUTH WALES) - I hope that before I sit down I shall have convinced the honorable senator of the fundamental fallacy which underlies the nationalization of credit. I believe I shall be able to show him that the right method to adopt to reduce Australia to the depths of penury is to bring about the nationalization of credit. If he understood the system of credit and the foundation upon which it is built, he would once and for all abandon those views, realizing that they are the greatest folly. I did not attempt to prepare a set speech on this measure, because I found myself in some doubt as to the real intention of the Government in bringing it forward. I tell the Government quite frankly that I, at all events, do not believe it has stated its ultimate objective to either Parliament or the country. To some extent I share the view which is held by honorable senators who sit on the left of the Chair, that the reasons which have been advanced are not sufficiently profound to indicate a necessity for the introduction of the measure, and the change that is contemplated in the control of the savings bank thatat present is attached to the Commonwealth Bank. I hold the view that the ultimate objective of the Government is to clear the decks somewhat by divorcing the activities of the savings bank from those of the Commonwealth Bank, so that in the course of time the latter may realize its true function as a central bank in a way by which it is capable of conferring inestimable benefits upon every man, woman, and child in Australia. If that is the objective, it has my hearty support. It is well within the realm of possibility for the Commonwealth Bank to become such an institution. One of the great dangers that I have always foreseen has been exemplified in this chamber to-day. I dare say that one of the reasons why the Government has not frankly advised the country of its real objective, is that it fears that if, by some turn of fortune's wheel, our friends opposite should again be returned to the

Treasury bench, they would undo the good work that had already been done, and endeavour to realize their objective of making the Commonwealth Bank the grave of all other banking institutions.

Senator Thompson - That is not a near possibility, I hope.

Mr GREENE (NEW SOUTH WALES) - I also hope that it is not. I believe that the Commonwealth Bank could and should become the centre of banking organization in Australia. If we make it that, we shall have gone further towards establishing the business credit of this country on a sound basis for the future than is possible by any other means. If the Commonwealth Bank is to be the central banking institution of Australia; if it is to be the foundation upon which the whole structure of Australia's banking finance rests, it cannot and must never employ its funds to any extent in the ordinary banking business of the other banks. The moment it did so, it would become involved in the ordinary business of banking, and could not function as a central bank or be the foundation of our banking system. I believe I shall be able to prove that it is utterly impossible to nationalize credit.

Senator Findley - The honorable senator ought not to forget his prediction when the Commonwealth Bank was first proposed.

Mr GREENE (NEW SOUTH WALES) - I have not forgotten what I then said.

Senator Findley - The honorable senator was incorrect.

Mr GREENE (NEW SOUTH WALES) - I was not. I said then, and I repeat now, that it would have been infinitely better if the Labour party had had a thorough inquiry into the banking system of Australia, and had ascertained the proper kind of bank to establish. Had it done so, the Commonwealth Bank would have been of infinitely more value to Australia.

Senator Findley - The honorable senator predicted that it would be a failure.

Mr GREENE (NEW SOUTH WALES) - I do not think that my honorable friend can point to any such prediction. The reason why a central bank should never engage in the ordinary business of banking is in reality a very simple one. The whole object of a central bank is to stand behind the banking business of the country, and in times of stress and difficulty, which are always occurring to some extent, to make available its resources in such a way that it will afford the relief which is essential. In the last few months we have experienced a very stringent money market. So stringent has it been that instances have come to my notice of men who have gone to their bankers with giltedged security, that showed a margin of 75 per cent. on the amount they wished to have advanced, and have received the reply, " We are very sorry, but we cannot give you one penny." That position has arisen from two causes apart from seasonal conditions. One is the extremely rigid system of banking that exists in Australia; and the other that, at the present time, there is no institution which, holding its funds in a fluid form, has at its command the means to make its resources available to the other banks to relieve the stringency. That is one of the great functions which a central bank should perform. But if that bank, in competition with others, advances its funds in exactly the same way as they, and those funds are utilized in a similar class of business, tied up in long dated or not easily realizable securities, it is subject to the like stringency.

Senator Thompson - The Bank of England does private banking in addition to acting as acentral bank.

Mr GREENE (NEW SOUTH WALES) - To only a limited extent. A central bank which is engaged in the same class of business as that of the other banks will experience their difficulties in times of financial stringency; instead of being able to assist them, it also will be in straitened circumstances. No bank can advance more money than it has.

Senator Hoare - Money or credit ?

Mr GREENE (NEW SOUTH WALES) - A bank can only advance the money that it has.

Senator Hoare - Will the honorable senator explain how the banks, with less than £57,000,000 in notes, gold, and bullion can lend approximately £300,000,000?

Mr GREENE (NEW SOUTH WALES) - It is done on a system of credit. Has the honorable senator considered the basis of that system ?

Senator Hoare - I am waiting for the honorable senator to explain why credit cannot be nationalized.

Mr GREENE (NEW SOUTH WALES) - Credit cannot be' nationalized because it is founded on the individual. The credit of a nation is the accumulated credit of the individuals comprising it.

Senator Hoare - If it is the credit of the community or the nation why cannot it be nationalized?

Mr GREENE (NEW SOUTH WALES) - It is impossible to nationalize anything which is based on the individual credit of the unit. The system of credit is built up, stone by stone, tier by tier, on the individual credit of the units in the community. That is why it is impossible to nationalize credit. Nationalization necessarily destroys the unit and leaves the nationalizer grasping at a shadow-

Senator Hoare - Has the honorable senator ever read Frank Lock's Nationalization of Credits

Mr GREENE (NEW SOUTH WALES) - No, and I do not want to read it if the author's views are similar to those expressed by the honorable senator. I remind him that some time ago Russia attempted to nationalize credit. It was thought that, if all the capitalists were killed their wealth would become the wealth of the nation. The attempt resulted in the credit of Russia, both individual and national, being destroyed. The basis of the whole system of credit is that the law gives to every man the inviolable right to hold that which is his. Upon that basis the system of credit is built. The credit of any company or bank is the accumulated credit of its individual shareholders.

Senator Duncan - Credit cannot be nationalized without nationalizing security.

Mr GREENE (NEW SOUTH WALES) - It is impossible to nationalize credit, because the nation's credit is based upon and is the cumulative effect of that of the individuals who form it. While I doubt the necessity for separating the savings bank branch from the ordinary business of the Commonwealth Bank, in order to give effect to a housing scheme and to provide for rural credits, I feel that if the proposal of the Government will make it possible - as I believe it will - for the Commonwealth Bank to become a central bank, a rock of defence in times of financial stress, then it has done the right thing in introducing this bill. A bank which is engaged in financing rural industries and housing schemes, and in providing longdated credits, cannot keep its assets in a condition sufficiently fluid to enable "it to carry out the functions of a central bank. When Sir Ernest Harvey, the controller of the Bank of England, who was recently in Australia, said that the proposals1 of the directors of the Commonwealth Bank were along the lines adopted by the directors of his bank, carrying out the functions of a central bank, he meant that both banks were endeavouring to keep their assets in as fluid a condition as possible under existing banking conditions so that they could- render financial assistance to the country generally. In making money available for short periods only, and thus keeping its assets in a fluid condition, a bank must necessarily be prepared to earn lower rates of interest. But in doing so it renders a far greater service to the community than- if by doing otherwise its profits were £ per cent, greater. If I have rightly interpreted the Government's intention, I hope that no amount of opposition will turn it aside from the course it proposes to follow. The Commonwealth Bank properly established as a central bank will render such assistance to this country that even honorable senators opposite will be convinced of the wisdom of the Government's proposal; and, except from a few persons whose opinions are of little value, we shall hear no more of the nationalization of credit. Australia needs a central bank. While our people were, for the most part, engaged in primary industries the cash credit system of banking was admirably suited to our needs. The amount of business then done by bills was comparatively small; indeed, there is only a small bill market in Australia to-day. But if we had a central bank which was amongst other things, a bank of rediscount to which the other banks could turn in times of financial stress and obtain assistance, we should have a growing bill market, and a very much more fluid condition in banking circles, with the result that those periods of financial stress which we from time to time experience and which are so detrimental to our progress, would be less, and our financial position improved.

Senator Thompson - Are there not big bills of exchange now in respect of exports?

Mr GREENE (NEW SOUTH WALES) - Those bills do not help us a great deal ; in fact, the difficulties connected with our exports some times cause internal financial stringency. The bills of exchange in respect of the wheat and wool which we export do not help us. We want a bill market for internal commerce.

SenatorThompson. - We do not want to get back to the old days when promissory notes were largely used.

Mr GREENE (NEW SOUTH WALES) - A great deal can be done with bills of exchange if the business is established on a thoroughly sound basis. By means of bills our finances can be made more liquid than they now are. For that reasonI believe that the Commonwealth Bank, properly controlled, has a great future. Believing that the purpose of the Government in introducing this bill is to achieve what I have said, I shall support the measure.

Suggest corrections