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Thursday, 26 November 1959


Order! The honorable member for Watson will cease interjecting.

Mr CAIRNS - When the corporation gets this money from Consolidated Revenue Fund, the next step that it takes is to put it into Commonwealth securities, which it then, presumably, locks away in a safe. Some time in the future, if it gets into difficulties, it will be able to take a certain course of action with those securities. I think the Minister would have to point out the difference between this course of action and the alternative. He thinks the alternative is Douglas Credit, but let us examine the position. If the corporation has this £500,000 or £1,000,000 worth of Government securities in its safe, and it gets into difficulties, it will sell those securities, perhaps to members of the public, perhaps to the private banks or perhaps on the shortterm money market. It sells the securities and then it has the capacity to draw cheques or notes on some bank as a result. This would be the effect of the transaction.

If, on the other hand, the Government had not provided this £500,000 or £1,000,000, and the corporation had no securities locked away in its safe, what would it do in the case of an emergency? The Commonwealth Government would simply issue treasury-bills to the Commonwealth Bank, authorizing it to pay the required amount of money to the Export Payments Insurance Corporation. This would involve a lower rate of interest, and perhaps less cost to the corporation, than would be the case if the corporation adopted the method I mentioned earlier and sold the Commonwealth securities that it had in its safe.

The difference between the two methods is not the difference between Douglas Credit and sound finance. It is the difference between conservative finance and finance that is not so conservative. In one case the corporation has some government securities locked away in its safe. If it ran into difficulties it would sell them as an ordinary business concern would do. I can understand the Minister and his supporters on the Government side wanting to make this organization work like an ordinary business concern, because that is the way they think, but it is not necessary to do so in financing this corporation, and it is quite possible to adopt the other method. I think that if the other method were adopted it would mean less cost to the community as a whole and more economical working of the corporation.

It might be said that if the corporation had to go to the Treasury or to the Commonwealth Bank, by means of the treasurybill process, this would have an inflationary effect. Conceivably it could. If the process brought into existence a fresh amount of money when the economy was at a high level of activity, it might have a net inflationary effect. But I have been doing my best recently to show that this is not necessarily the case. It is no more inflationary to follow this process by means of the Commonwealth Bank than by means of a private bank. The bringing of money into existence through a private bank is just as inflationary as bringing it into existence through the central Commonwealth Bank.

I think it is necessary for the committee to consider the financial mechanism that is involved and to understand that the difference between the two procedures is not the difference between Douglas Credit and something else. They are two different processes, both having a certain validity. In passing let me say that for a great many years Douglas Credit was a far more advanced and beneficial financial theory than the conservative theory that prevailed in early 1930's and caused 500,000 or 600,000 people to become unemployed. I do not look askance at Douglas Credit in a consideration of that kind, because I believe it was more advanced than the theories put forward by economists and treasurers of 35 or 40 years ago.

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