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Friday, 11 September 1942

Senator DARCEY (Tasmania) . - The Leader of the Opposition (Senator MeLeay) declared that on page 13 of the budget was to be found a statement which had special reference to the policy which I support. If the honorable senator knew anything about central bank credit, he would not make so foolish a statement. There is not such an institution as a central bank in Australia. There never has been, and there never will he a central bank in this country so long as the Commonwealth Bank as it functions at present is in existence.

Senator Allan MacDonald - We have had a central bank in Australia for the last 30 years.

Senator DARCEY - The honorable senator does not know what he is talking about. The central bank as we have known it in Australia for the last 30 years, is the principal bank of the private banking system. In Great Britain, it is represented by the Bank of England, which is presided over by Mr. Montagu Norman, and in the United States of America, by the Central

Reserve Bank, which was presided over, until recently, by Mr. Jacob Schiff. So. great was the power wielded by the private banking system in the United States of America that in 1912, the late President Wilson appointed a commission to investigate it. That commission found that the bank presided over by Mr. Jacob Schiff controlled three big banks, which in turn, controlled 125 small banks; and these controlled the whole of the industrial output of the United States of America. So great were the depredations perpetrated by the private banking system at that time that President Wilson was compelled to enact the Sherman anti-trust law. Certain trusts were fined 20,000,000 dollars. In order to show their strength, they defied the Government by refusing to pay the fine in gold. They paid it in paper. The Bank of England wields similar power. The late Mr. Gladstone declared that he did not know that the power of the " City ", represented by the Bank of England, was so great, until he became Prime Minister. As I have said previously, hanks can make and unmake governments. I take the following quotation from the Westralian Banker, of April, 1942 :-

It is a well recognized principle in banking that whenever a bank makes an advance by way of overdraft to a customer, the deposits of that same bank or some other bank increase to a corresponding extent. If, for instance, a m,7 n borrows £1.000 from a bank, the account of the person ito whom he pays this amount is swollen to the extent of the credit thus created.

I have put that fact before honorable senators over and over again. Every bank loan creates a deposit. Nine out of ten people, including many bank managers, believe that the amount shown as deposits in a bank's balance-sheet represents money placed in the bank by depositors. I repeat that banks do not lend their deposits ; because it is their responsibility to have those deposits on call. To substantiate that statement, I cite the reply given by Mr. Graham Towers, the manager of the Bank of Canada, which is controlled by the Canadian Government, when giving evidence on oath before a committee on the 21st June. 1939, at Ottawa. He said : " Banks cannot, of course, loan the money of their depositors ". Banks cannot lend their deposits; but they can lend against their deposits. They lend against the right to draw which, in Australia, the private banks secured from the Bruce-Page Government after that government strangled the Commonwealth Bank in 1934. The quotation from the Westralian Banker continues -

Inasmuch as banks have been doing this from time immemorial-

That is, making advances and putting them down as deposits -

It is also obvious that they have been collecting interest on what are merely book entries.

How many times have honorable senators heard me make that statement, and quote the greatest authorities in tho world in support of it ? I have now given them the opinion of Mr. Graham Towers, of Canada, to back it up. The quotation continues -

But the champagne party for the banks has ended with the regulations which were gazetted on the 2Cth November last, which brought banks under Commonwealth Government control. No longer can banks make advances excepting in accordance with Commonwealth bank policy. Further, the banks have to deposit with the Commonwealth Bank their surplus deposits at a nominal rate of interest, which it is understood is less than 1 per cent.

I read in a newspaper published in Sydney a statement by " the Government spokesman at Canberra" that the banks had already deposited £37,000,000 worth of money with the Commonwealth Bank, on which it is paying 15s. per cent, interest. I say that they have done nothing of the kind. If their surplus profits since the regulation came into operation amount to £37,000,000 banking must be a very profitable occupation.

Senator Sampson - "What are surplus profits ?

Senator DARCEY - I have been trying to find out for a long time. The quotation continues -

Thus no longer can the trading banks follow the policy of creating credit by making new advances and charging 5, 0, or 7 per cent, on fictional money, which is nothing more or less than a book entry.

One banking man told me that the Bank of New South Wales had deposits of £541,000,000, out of which it had put £2,000.000 into war loans. I said that if its balance showed £54,000,000 worth of deposits, and it put £2,000,000 in war loans, its deposits were then £56,000,000. He said that the. £54,000,000 was money put into the bank in the form of deposits for the bank to lend to its clients, but Mr. Graham Towers says that banks cannot lend their deposits. I told this man that the total issue of currency in Australia stood at only £57,000,000, and if the Bank of New South Wales was responsible for £54,000,0.00, I should like to know what the other large banks in Australia, which all had deposits of over £50,000,000, were doing. He said he had never thought of that. The principal teller of another bank told me that his bank paid good money for every £1 of depositors' money it lent. I said, " That won't cost you much. Surely you know better than to think that your bank lends depositors' money ". One keen financier who is on a committee with me said, " The only money that the banks can lend is what is entrusted to them by the public ". Is it any wonder that I cannot make headway against conservative ideas like that? Some one wrote to the Treasurer (Mr. Chifley) and asked what the Government meant by surplus deposits. The Treasurer replied -

I can assure you that your interpretation of the Government's financial policy is not in accordance with facts. Briefly, the Government holds the view that there is no problem of war finance as such. The only problem is so to organize the man-power and productive resources of the Commonwealth that they will be of the maximum value to the country at this time.

That sounds all right, but how does it work out? The Leader of the Opposition has told us that we must not utilize bank credit unduly, because it means inflation, but it does not matter from what source credit comes if it brings extra money into circulation, prices must rise unless they are controlled. No matter whether the money comes from national credit or private banks, prices must rise. The policy of this Government is something like this : at one end of the counter they will not allow the banks to buy war bonds for themselves or advance money to other people to buy war bonds, so that the dummying that was done by the banks in that direction in the past has been stopped. At the other end of the counter the Government has already passed bills to raise £150,000,000 by the sale of inscribed stock, which is another form of government borrowing, carrying interest at the same rate. I do not think that the banks care twopence because they are prevented from buying war bonds or advancing money to other people to buy them. It will take all the credit they can raise to cater for treasury-bills and inscribed stock, because they are limited in the amount of cash credits that they can advance. Mr. Graham Towers said that not only should the Government bank lend money for public works, but there would be no need to repay it, because the Government indirectly recovered what it spent on public works, because whatever benefited the country benefited the Government. I noticed the following statement published in 1933, about a Loan Council meeting, and I will quote it because it has a strong bearing on what is occurring to-day: -

The last Loan Council meeting (in December, 1932) showed sow e difference of opinion as to policy. The Premier of New South Wales (Mr. Stevens) developed an argument for the continuance of treasury-bill finance for a further period. The Commonwealth Government, together with the chairman of the Commonwealth Bank (Sir Robert Gibson and the Premiers of the other States favoured the flotation of a £20.000,000 public loan (to be underwritten by the banks) at 4 per cent., some considerable portion of which was to bc used for the retirement of treasury-bills, and the balance for public works. The discussion became acute and public. A compromise was reached and a public loan of £8,000,000 at 3f per cent, was attempted. It was a partial failure.

I remember what happened on that occasion. The Government tried to float a loan of £8,000,000 and got only £4,850,000. When I asked in this chamber how the loan of £S,000,000 was made up, I found that the banks had supplied £3,750,000 by forwarding a cheque to the Treasury for that amount. I asked the Minister representing the Treasurer the cost of raising various loans. The cost of raising the first war loan this year of £35,000,000 was £134,432, out of which the banks received as commission £32,67S, simply for making applications on behalf of their clients. They were paid 5s. per cent. That £32,678 was a very good return for writing applications, especially when there was no necessity for it at all, because the loan could have been raised through the Commonwealth Bank and the whole of the £134,432 saved. That is well known to honorable senators, and I have quoted authorities for it over and over again. We are told that the profits of the banks are not to exceed a certain amount. The Treasurer said in reply to a question, " The banks can make only 2.9 per cent, interest ". Yet they are still borrowing at 2£ per cent, and lending at 6 per cent., and there is no way of telling from a bank's balance-sheet what profits it makes. I quoted the profits made by the five big banks in Great Britain. Barclay's bank's profit was £1,375,000, of which it paid only £175,000 in dividends. The balance, less its overhead, went into secret reserves, but its dividend worked out at 14 per cent., and the four other big banks paid up to 18 per cent. I wonder what the British Tommy thought of that. It was announced over the air recently that there was an agitation to pay him more. 1 should think that he ought to he paid more, when the banks are making profits of at least 18 per cent., and no one can tell what the actual profits are. The present Government has no more control over banking system than had the previous Government which suggested that the first £20,000,000 loan be underwritten by the private banks. I asked how the money was to be raised, and was told that it was to be raised through the agency of the Commonwealth Bank and the private banks. After the loan was raised I asked how much came through the Commonwealth Bank and bow much through the private banks, and the Government refused to give the Senate the information, which, in fact, has never been given ; but Mr. Gillespie, the manager of one of the private banks, addressing the shareholders at annual meeting, spoke of the patriotism of the private banks, and the way they were sticking to the Government, and added, "I can assure you that the whole £20,000,000 of the first war loan was raised by the private banks". That is why the Government would not tell honorable senators how it was raised. The annual interest bill on that loan is £600.000. If members of Parliament did their duty they would stop the perpetuation of that wrong. I asked Mr. Menzies when he was Prime Minister if his Government would consider getting the necessary credits for the war from the Commonwealth Bank. He replied, " Yes. up to the point of safety ". I asked him where that point was, and he would not tell me. I also asked him how long he intended to raise war credits through the private banks at 3 J per cent, interest when practically the same accommodation could be obtained interest-free from the Commonwealth Bank. His answer was " Senator Darcey, if you can tell me where I can get money without paying interest, I will do so ". That was a deliberate evasion to which no man who was interested in the welfare of this country should have resorted.

Senator Spicer - What has the present Government done about it?

Senator DARCEY - I am not responsible for the policy of this Government. I am responsible to the taxpayers who have sent me here, and so long as I am in this chamber I shall speak only what I know to be the truth.

I shall deal now with treasury-bill finance. Over and over again I have pointed out that a treasury bill is an undated promissory note. The Mr. Gillespie to whom I have referred complained at that time that the most that could ' be obtained on treasury-bills in London was 10s. per cent. The private banks were then getting 35s. per cent, from the Menzies Government - more than three and a half times as much. No wonder they complained . about how little they could get in London. In Australia, treasury bills can be purchased only by banks. At one time an attempt was made to allow the public to invest in treasury bills, but the smallest denomination allowable was £1,000, and very few people could afford to invest that amount.

In the course of his examination, Mr. Graham Towers was asked " Now, as a matter of fact, to-day our gold is purchased by the Bank of Canada with notes which it issues - not redeemable in gold - in effect using printing-press money. . . . to purchase gold ", and he replied " That is the practice all over the world ". The next question was " When you allow the merchant banking system to issue bank deposits - with the practice of using cheques - you virtually allow the banks to issue an effective substitute for money, do you not ? ", and the answer was " The bank deposits are actually money in that sense ". In effect, the banks -create credit out of nothing and lend it to the Government at &i per cent, interest. As a matter of fact, during the regime of the Lyons Government a loan was floated at 6 per cent. On one occasion, a meeting of the Economic Society in Hobart was addressed by a gentleman from the Bank of England who said that the Russian system of raising money was to float a loan at 6 per cent, and then, when the money was subscribed, to cut the interest down to 3 per cent. I pointed out to that gentleman that that system was not peculiar to Russia, and suggested that perhaps M. Stalin had learned it from Mr. Lyons, or vice versa. The next question put to Mr. Graham Towers was " Then we authorize the banks to issue a substitute for money?" and he replied "Yes, I think that is a very fair statement of banking ". I have been telling honorable senators that for many years, but still no attempt has been made to stop this private bank thieving. The next question was: " Will you tell me why a government with power to create money should give that power away to a private monopoly, and then borrow that which Parliament can create itself, back at interest, to the point of national bankruptcy ". The answer was, "... we realize, of course, that the amount which is paid provides part of the operating costs and some interest on deposits. Now, if Parliament wants to change the form of operating the banking system, then certainly that is within the power of Parliament." That is sworn evidence given by the manager of the Bank of Canada, which is on practically the same footing as the Commonwealth Bank of Australia, the only difference being that our bank was established many years earlier. Honorable senators will recall the fight that was put up by private banks to prevent the establishment of the Commonwealth Bank. In 1924 the Bruce-Page Government attempted to strangle the Commonwealth Bank and partially succeeded. As

Ltold Mr. Bruce when he visited Tasmania, that action was the greatest piece of political .treachery ever perpetrated on the people of Australia, and it was carried out at the instance of the private banks. Mr. Bruce broke the pledge which he took upon entering the House of Representatives, to look after the interests of the people. The benefits which the Commonwealth Bank previously had conferred upon the people of Australia were really wonderful, but they were severely curtailed by the amending legislation passed by the Bruce-Page Government. In November, 1920, the private banks applied to the Commonwealth Bank Board which represented the private banking institutions, for what is known as " the right to draw ". The first application for the "right to draw" was for £5,000,000 worth of notes and the agreement made with the Commonwealth Bank Board was that when these notes were presented they would be taken up by the banks .at 4 per cent, interest. However, when they were printed and ready for issue the private banks notified the Commonwealth Bank Board that they refused to take any of the money. In October, 1924, the Commonwealth Bank Act was proclaimed, and a conference was held between the Bruce-Page Government, the Associated Banks and the Commonwealth Bank Board. The banks were given the right to draw another £10,000,000, and interest at 4 per cent, to be paid only on the amount actually drawn. One naturally asks why it was that the Commonwealth Bank yielded to the demands of the private banks for these " rights to draw " in order to finance the wool sales, when the Commonwealth Bank could so easily have financed the transaction itself. That question has never been answered; but the following facts may, or may not, throw some light upon the subject. Mr. Kell, who succeeded Sir Denison Miller, was only acting governor of the bank before the directorate was appointed, and so had neither the status nor the power of his predecessor. After the appointment of the directorate, the governor of the bank was merely an executive officer. In effect, he was under the power of members of the board who represented the big financial institutions. Moreover, he personally was in a rather precarious position, for previously he had made things so unpleasant for Mr. M. B. Young, a leading official of the bank, that the latter resigned and brought serious accusations against Mr. Kell. The Bruce-Page Administration supported Mr. Kell, refused to appoint an independent tribunal to deal with the accusations, and upon Mr. Kell's retirement in 1926, granted him a pension of £1,000 per annum. The trouble for the primary producers began with the setting up of a new Commonwealth Bank Board which, in addition to the governor of the bank and the secretary to the Treasury, was composed of certain commercial magnates who were appointed to control the destinies of the people's bank, although they might themselves be shareholders in private hanks, and in spite of the fact that such institutions as those of which they were directors, were normally lenders on a very large scale of money at interest. The commercial magnates to whom I have referred were: - John J. Garvan, managing-director, Mutual Life' and Citizens' Assurance Company Limited, pastoralist, Rochdale Station, Queensland; Sir Robert Gibson, K.B.E., vice-president Associated Chambers of Manufactures, Victorian representative, Central Coal Board, director, Austral Manufacturing Company, the Lux Foundry, ' National Mutual Life Insurance Company, Union Trustee Company, Robert Harper and Company Limited, merchants and manufacturers and the Chamber of Manufactures Insurance Company; Sir .Samuel Hordern, director, Anthony Hordern and Sons, universal providers, Australian Mutual Provident Society, and the Royal Insurance Company; Mr. Robert Bond W. McComas, president of various woolbuyers' associations, proprietor of William Haughton and Company, woolbrokers ; Mr. John McKenzie Lees, Fellow of the Institute of Bankers, London, and formerly chairman of Associated Banks in Queensland, and general manager of the Bank of Queensland, and of the Bank of North Queensland; Mr. Richard S. Drummond, an inconspicuous gentleman, appointed for inconspicuous reasons The rates charged for financing primary produce began to rise at once, until they had more than doubled. Primary producers had to pay £7,000,000 in bank charges during the 1924-25 season as against £3,000,000 during the previous year. When the 'farmers in Western Australia formed a voluntary pool, they applied confidently to the Commonwealth Bank to finance it as had been done for similar pools in previous years; but it was no longer the same bank and both it and the private banks alike imposed conditions which were intolerable. Obviously, if it cost twice as much in 1924 to ship produce to the London market as it did in 19'23, the position was intolerable and unjust. Finally, when the farmers, finding themselves unable to secure the necessary money in Australia, obtained it from the Co-operative Wholesale Society in Great Britain, the concerted action of the private banks and their new ally, the Commonwealth Bank, frustrated the scheme. When the Cooperative Wholesale Society paid the money in to the London branch of the Commonwealth Bank, that institution, instead of transferring the money to its Perth branch transferred it in quotas of onefifth to each of the five associated banks operating in Perth so that each bank wa3 enabled to exploit the farmers by means of transfer charges. The transportation of 4,000,000 bushels of wheat from Australia to Great Britain cost the Co-opera'tive Wholesale Society ls. a bushel, but for merely transmitting the money the banks charged the farmers practically 3-Jd. a bushel, amounting in all to £60,000. Had that money been treated properly by the Commonwealth Bank the transmitting charge of £60,000 would not have been incurred.

Senator Collett - Who dictates the policy of the Commonwealth Bank?

Senator DARCEY - The Commonwealth Bank Board of course. Who else could do it? Had Sir Denison Miller lived that would not have happened. The attempt made in 1924 by the Bruce-Page Government to strangle the Commonwealth Bank would have been consummated a few years ago had the amending bill introduced by the then Treasurer (Mr. Casey) been passed. As it was, there was a public outcry against it and Mr. Casey received tens of thousands of letters demanding that the bill be dropped. He told me that in one week it cost him £64 in stamps to reply to people who had written protesting against the bill. That, of course, is what is called pressure politics, and the result was that the bill was dropped. Also, some years ago a mortgage bank bill was introduced at the instigation of the private banks. Under that bill, it was proposed to raise £30,000,000 by selling inscribed stock and debentures in order to raise the capital for the new mortgage bank. Had that been done the private banks would have purchased the inscribed; stock and debentures, and, of course, would have drawn the profits. Also, under company law, if debentureholders are not satisfied with the manner in which a company is being conducted they can take over.

Sir ErnestHarvey, of the Bank of England, arrived in Australia early in 1927 "for the purpose of advising the Commonwealth Bank as to certain phases of central banking ". We have never had a central bank in Australia, but much has been done against the interests of the people. The object of the visit by Sir Ernest Harvey was to make the Commonwealth Bank, which was supposed to be a national bank operating for the good of the people, a central bank operating for the benefit of private banks. Until last year, the policy of the bank of England was to send Sir Ernest Harvey and Sir Otto Niemeyer to various parts of the Empire to establish central banks. Sir Otto Niemeyer secured the establishment of the Central Bank of New Zealand, but it was never used, although it was founded under a Labour administration. Sir Ernest Harvey pointed out that the savings banks business did' not come within the ambit of a central bank of reserve. Of course it does not. I notice with regret that the Senate is gradually thinning. I recall reading in the press that while Mr. Churchill was addressing the House of Commons a few days ago, over 100 members walked out of the chamber. A statement to that effect appeared in the London Times. I have witnessed a similar occurrence in this Senate, when a member has been endeavouring to place the truth before the clamber. On the last occasion when I spoke on this matter, there were ten senators left, and I had to draw the attention of the President to the state of the chamber. When the Commonwealth Bank was established the deposits of the savings bank department were used to enable it to carry on. That was the greatest, source of real credit the bank had. Mr. King O'Malley visited Hobart and induced the Premier of that State to have £30,000 or £40,000 then in the Savings Bank in Hobart transferred to the Commonwealth Bank. The Commonwealth Bank is refusing business every day, yet it made a profit of over £2,000,000 last year. No wonder the supporters of the private banks talked about " Fisher's flimsies ", and said that the Commonwealth Bank was bound to fail. They went so far as to refuse to clear the cheques of the Commonwealth Bank.

Sir ErnestHarvey succeeded in separating the Savings Bank Department of the Commonwealth Bank from the general bank; but, under the Commonwealth Bank (Savings Bank) Act 1927, over 50 per cent, of the revenue of the Commonwealth Bank was taken away from it, and placed under the control of three directors. It was specially provided, by an amendment of the definition of "bank" in the original act, that the Commonwealth Bank of Australia "does not include the Savings Bank ". That separation was not in the interests of the people. It was done to enable the Commonwealth Bank to exercise the same power to close down on the people as is exercised by the private banks. Much of the profit the Commonwealth Bank was earning was made in the Savings Bank Department. But the bill did not merely lessen the bank's profits, it took away the bank's cash reserves which enabled it to compete with private banks, terminated its trading operations, and reduced it to a bankers' bank. It became neither a trading bank nor a savings bank, nor yet a reserve bank, but a thing of shreds and patches, at the mercy of private institutions, which could be destroyed at any time. So said the late Mr. Charlton in the House of Representatives.

But the ownership of tobe bank was still vested in the people of Australia, and it was the first bank in the world to be established by the people for the purpose of functioning in the public interest. Had it not been for the traitorous action of the Bruce-Page Government, it would still bc the strongest bank in Australia. It could have saved any other bank from difficulties, and it could ih ave saved the credit of the country in every way. It can lend interest-free money to the Government or to others. The Battle of Waterloo was fought on credit. The money borrowed to finance that battle has not been repaid. Australia still owes £400,000,000 on the last war, although it has already paid over £400,000,000 by way of interest on the money borrowed to finance that conflict. Even Mr. J. M. Keynes, until he was placed on the Directorate of the Bank of England, said that we need not worry about money at all, because all we require is men and materials. Perhaps, as M. Gustave Le Bon in his great book says, " We are not governed by reason but by anterior ideas ' ", or, as Lord Sempell said -

We have preconceived notions on financial and economic matters which we have held for so long, and which are so deeply rooted, that it is taking two world wars and the actual visible disruption of the system which was the expression of our theories, to induce us even to give a hearing to those who have from time to time been pointing out the direction in which reform is necessary.

When I say that we have not sufficient finance for the adequate defence of Australia, the answer given is " where is the money to come from " ? Nothing hurts the conservative mind so much as a new idea, and it seems quite impossible to convince honorable senators of the soundness of my financial beliefs. But I shall keep on trying to convert them. I made a statement in this chamber six months before the war broke out to the effect that the present monetary system had brought the world to poverty, and was rapidly leading us into a war that would destroy our civilization. In April, 1939, I read an article entitled " Warning Europe " and embodied it in one of my speeches in. the Senate. No more important statement than that contained in the article has ever been made in this chamber. I spoke for 20 or 25 minutes, 'but not a newspaper in Australia recorded a line of ]ny remarks. So much, for the freedom of the press! On the 18th November last, Lord Sempell said in the House of Lords -

The interest rate now being paid to the banks for this newly created book entry represents in effect a fee to them for the additional clerical work involved. This cannot, however, I suggest, justify the capital sum being shown as a debt from the State to the banks, nor do I feel that the State should pay, by way of interest on the loan, a fee which should properly bc paid by the citizens enjoying the facilities of the bank.

The Leader of the Opposition in the House of Representatives (Mr. Eadden) stated on the 10th March -

Our war needs have been and can be met by employing sound financial methods which will keep our internal currency stable. The "" financial credit " which you apparently advocate could do this only by uncontrolled inflation.

I have asked many people from university professors downwards to tell me what is meant by inflation, and not one in 50 knows what it means. It has been regarded as a sort of black death which we must not allow to occur on any account, but now it merely means that if extra money goes into circulation, prices rise. We have a Prices Commissioner to prevent the undue increase of prices. The banks are not prevented to-day from exploiting the public. If they give 2% per cent, for deposits, and. charge their customers 6 per cent, on overdrafts, that is the concern of the people. When the first war loan was raised, the Treasurer of Tasmania said that it would be foolish to continue to borrow on the present orthodox system. It is just as necessary to defeat the present financial system as to defeat Germany, but, when the next loan was issued, the same practice was adopted. A fight is proceeding at present in the House of Commons on the subject of whether loans should continue to be raised in the orthodox manner. Just as persons like myself in this Parliament are regarded as Bolsheviks, so there are Bolsheviks in the Rouse of Commons. They want to 1-now why the people of Great Britain arc paying interest on £6,000,000,000 as the result of the last war.

Senator Collett - Does the honorable senator know what national credit is?

Senator DARCEY - Yes; it is using the credit of the country to finance the country.

Senator Collett - What is the credit of the country

Senator DARCEY - A country's credit is its productive capacity. Last year, Australia's production of goods was valued at £450,000,000.

Senator Spicer - Some of them were war goods.

Senator DARCEY - That does not matter. The manager of the Bank of Canada once said that there is no need to pay back the money used to create national assets. If the national credit be used in the defence of Australia that should be a sufficient repayment.

Senator FOLL (QUEENSLAND) - Is not the credit of the country f airly heavily mortgaged already ?

Senator DARCEY - Yes, to the private banks. At the beginning of the war, Australia's national debt was about £1,200,000,000, of which 80 per cent, came from the private banks. During the depression, a builder in Sydney who had a block of flats valued at over £10,000 and on which there was a mortgage of £1,500 was told by his bank manager that the directors of the bank were concerned about his account and desired that the mortgage be reduced. The client was living in a house worth about £5,000,. and appeared to be a prosperous man. He told the bank manager that the building trade was in a bad way because of the depression, and that he had not done any work for two years. He went on to say that, although he could not pay to the bank any money in. order to reduce "his mortgage, the bank had ample security in the building over which it held a mortgage. They parted with an admonition from the bank manager that he should think the matter over. Later, he received a further communication from the bank asking him to call. Before leaving home, he said to his wife that he might have to sell their house in order to satisfy the demands of the bank. He was met by a smiling bank manager, who placed before him a box of cigars. The conversation was somewhat as follows: The bank manager said : " Good morning, Mr. Brown. How are you?" The builder replied: "I am well, but I have no money to reduce my overdraft." The bank manager then said : " Forget all about your overdraft. Are you aware that a loan of £8,000,000 is on the market?" The client replied: "I am not concerned about the loan, as I have no money to invest. I am concerned about my overdraft with your bank." Again he was told : " Forget all about it. I want you to sign an application for £1,000 in that loan." When the client asked : " Will that not increase my indebtedness to the bank? " the bank manager replied: " No. We will issue you with a receipt for the £1,000, and we will hold the bonds on your behalf."

Senator Collett - I suppose the bank manager threw in the cigar?

Senator DARCEY - Possibly. After that, the bank manager became somewhat confidential, and said : " The quota which I. have to raise in this district is £25,000, and therefore all the Browns, Jones and Robinsons in the district have been sent a notice similar to that which you have received ". Each of the bank's clients signed on the dotted line. That was called a voluntary loan.

Senator Aylett - What did the banker get out of it?

Senator DARCEY - He got the usual 5% commission. In connexion with the last war loan the bankers drew £32,678 for services rendered to the Government in applying for war bonds on behalf of their clients. That sounds good business from the point of view of the banks. Is it any wonder that banks pay dividends as high as 18 per cent.? They do not disclose their profits, because they are able to put away large sums in secret reserves which are not revealed by the closest scrutiny of their balance-sheets. All big companies have secret reserves. From time to time shareholders ring the head office of a company in which they have invested money and ask what the next dividend will be. Those who are acquainted with the nature of the secret reserve, operate it to their credit on the stock exchange. In giving evidence before a royal commission the representatives of the private banks said that the banks held Government bonds worth £28,000,000. Honorable senators have heard of stock exchange transactions and of Government investments being at par. Many of these loans are above par. All that investors have to do is to send to the bank a cheque which the bank can then sell on the stock exchange for cash. I have told the Senate of the swindle that occurred in connexion with war savings certificates. Last October I asked how much money had been raised through the private hanks for war savings certificates, and I was told that the amount was £13,000,000. When I asked how the money had been paid, I was told that payment had been made by cheque. That means that all the money subscribed goes to swell the cash reserves of the banks, thereby enabling them to buy Treasury bills and inscribed stock. That practice should be stopped.

Senator Collett - Are not the private banks doing a great deal to create national credit?

Senator DARCEY - They are doing a great deal to increase the national debt. We are paying £1,000,000 a year to the banks as interest on their investments. The money cycle - that is, the time which elapses between the issuing of money by a bank until it again returns to the bank - is about ten or twelve days. If any working man is asked how much of his last week's wages he still has in his pocket he will say that he has paid most of it to various tradesmen such as his baker, his butcher, and his grocer, and that he has expended a few shillings on the pictures and in buying a few glasses of beer. That money is returned by the various tradesmen to the banks soon after they receive it. It is not necessary to have a lot of money in order to carry on a banking system. When the last war ended there was no more real money in Australia than when the war started, notwithstanding that the war cost this country £385,000,000. Wars are not fought with money. If I were in a position to do so, I should use the national credit to fight the war. That would be quite constitutional, because in paragraph 530 of the Report of the Royal Commission on Monetary and Banking Reform it is stated that, ultimately, Parliament is responsible for finance and everything necessary for the good of Australia, and that the Government acts as the executive of the Parliament. The Commonwealth Bank has certain powers which have been granted to it by statute. Those powers are to be exercised in the interests of the nation. The law provides that should there be any difference of opinion between the Government and the Commonwealth Bank Board on matters of policy, there shall be a free and frank discussion to straighten things out. Should their views still be irreconcilable, the Government can then say that it will take full responsibility for the result and instruct the bank what it must do. Is anything more definite than that required? No money reaches the Treasury when a £20,000,000 loan is floated : all that the Government gets is the right to draw cheques against the banks. When the Australian Mutual Provident Society, for instance, decides to invest £1,500,000 in a war loan, the procedure is that the manager of the society instructs his banker to apply for bonds to that value. A cheque is sent to the Treasury, and the company gets the bonds. For that service the banker receives £2,500 commission on the transaction. The whole business is a racket, which has been going on since 1649 when the Bank of England was founded.

Senator Collett - Is there any mention of banking in the Old Testament?

Senator DARCEY - Under the old Jewish law usury was not permitted. Money-lenders were not allowed to charge interest on advances. There is also a record that in New Testament times usurers were driven out of the temple at Jerusalem. In an address which I delivered, in the presence of a number of university professors, at a meeting of the Economic Society at Hobart, I said that the great English financial institution known as the Bank of England was started by a Scot named William Paterson, in the reign of William of Orange, who was a Dutchman, and the most authentic work on the history of the Bank of England was written in French by a professor of the University of Athens. I claimed that that was evidence of the international character of the bank. The Bank of England is no more the Bank of England than it is the Bank of New York. Neither in Australia nor in any other country do governments govern; there is a power over and above governments.

Senator Collett - That is most obvious at the present time.

Senator DARCEY - The Labour Government in the Commonwealth is doing well indeed, considering all the circumstances. Governments of the same political parties as are represented by the Opposition got this nation into debt, and when the Labour Government came into office it started with a big handicap. A population of 7,000,000 people was faced with a national debt twice as great as the national debt of Great Britain in 1914. [Extension of time granted.] The problem confronting Australia is whether the banks are to be allowed any longer to create hundreds of millions of pounds out of nothing and lend it to the nation at 3-^ per cent., or whether the national credit shall be utilized for the purpose, through the Commonwealth Bank.

Senator Lamp - Tell us about Professor Copland.

Senator DARCEY - I know Professor Copland well. At one time I was his pupil in the University of Tasmania, which was the first Australian university to establish a commerce course. I joined through the Workers' Educational Association.

Senator Collett - Since then economists have been almost as numerous as rabbits.

Senator DARCEY - The orthodox economist is well paid; but why the Government employs economists when there are 75 members in the House of Representatives and 36 members in this chamber I do not know. If we were capable of doing our job properly there would be no need for the Government to employ Professor Copland. It is the duty of the legislature to understand finance, for it is perfectly true that " finance is government, and government is finance ". No government seems to be able to carry on except by a policy of continual borrowing. At a recent meeting of the Loan Council the Treasurer of Tasmania, Mr. Dwyer Gray, made a remarkable statement, but the Hobart Mercury, which is an excellent newspaper in many ways, deliberately suppressed his remarks, although they constituted the most profound statement ever made at a meeting of the Loan

Council. Nevertheless, the same newspaper used a full column to report the speech of the Leader of the Opposition, in which he said that Mr. Dwyer Gray's fantastic proposal did not have the support of any Labour Premier at the Loan Council meeting, notwithstanding that resolutions had been passed by the Parliaments of some States urging that the Commonwealth Bank should be used to finance the war. The Leader of the Opposition said that his party believes in leaving financial matters to the experts, who are seldom members of Parliament. He was right in that statement. The Leader of the Opposition has also said that the ideas of the financial expert of the Labour party, Senator Darcey, are not embodied in the budget. While regretting that my views have not been incorporated in the budget, I wish to correct the impression, which apparently is held by the Leader of the Opposition, that I am the financial adviser to this Government. I do not hold that position; it is held by Professor Copland. I have said on other occasions that that gentleman would, no doubt, be prepared to expand his orthodoxy to any degree in order to retain his job. I should not be surprised if he were prepared to accept a revolutionary change of the monetary system if by so doing he could retain his job.

Senator Foll - I disagree with the honorable senator.

Senator DARCEY - Some time ago that gentleman attacked me in a railway carriage and said what he would do to me if I were a younger man. I replied that if I were a younger man I would take him on physically, in which event he would soon be "squibbing", as he al ways " squibs " when I attack him on financial subjects. Then he came back all smiles. The orthodox economist cannot be offended; that is, if he has a good job.

I think that I have convinced any intelligent man that the present banking system can endure no longer. I cannot see any chance of establishing a new order unless we break the present banking system. As Mr. Dwyer-Gray has said, it is just as necessary to beat that system as it is to beat the Germans, or the Japanese. Thai fact is being recognized in Great Britain to-day. On previous occasions I have pointed out that Mr. Churchill in 1936, in the House of Commons, thundered against the Government's inattention to defence works, and told it that Germany, in that year, had expended £800,000,000 on armaments. Tue Government of the day did not want Churchill. No government of mediocrities would want a man like him. To-day, however, he has to carry the burden produced by the mistakes of that government; and it is a good job that we have a bulldog like Churchill to carry that burden. Where would we be to-day with men like Lord Baldwin, or the late Ramsay MacDonald, who cut down Britain's defence expenditure? When Lord Baldwin was asked why he had not increased the defence vote he replied that had he done so the Conservatives would have won the election. At the outbreak of this war, Chamberlain declared that he was greatly strengthened when he realized the financial stability of the Empire. How long did that stability last? Within six months Britain was dependent upon lease-lend.

I repeat that banks are allowed to issue a substitute for money on which we pay interest. There are only three classes of people who get something for nothing. They are: the pickpocket, the coiner, and the banker - but with the banker it is a case of "Arise, Sir Walter !" or " Arise, Sir Thomas !" ; the bankers are knighted ! Mr. Graham Towers, the manager of the. Bank of Canada, was asked if the Government had power to change the present system, and he replied " Yes ". He was also asked whether the Government could authorize banks to issue a substitute for money, and he replied, " Yes ". They can issue it, but to the detriment of the country; and they will have people walking round in rags, as was the case in Alberta. I repeat that banks do not lend deposits. Honorable senators should not forget that fact. I recall the propaganda which was used by the bank's spokesman when I #as standing for election to the Senate. I knew the gentleman well. His father was a bank manager, and he also was a bank manager. He was also a chartered accountant, and a member of the local

Stock Exchange. He should have known something about finance. He said that the banks performed a very useful purpose. If one wanted to travel on the Continent all one had to do was to get a bank draft. If Brown had £500 for which he had no immediate use he could put it on deposit in a bank and get interest at a certain rate on it. He did not say that Brown would not receive a guarantee from the bank to get that money back. All that Brown is given is a receipt. However, if Brown wanted to borrow £500, he would be obliged to provide security worth £1,000. There was no guarantee that Brown would be repaid his deposit of £500. I recall that in 1892, thirteen out of 22 banks in Australia closed their doors on depositors.

If Parliament wishes to change the present banking system it has the power to do so. Why does it not do so? To-day, we are satisfied that it is not necessary to keep a gold reserve in Australia. We have no such reserve to-day. Reverting to the instance I gave a few moments ago, the Commonwealth Bank gave the private banks the " right to draw " £5,000,000. They applied for another £10,000,000. The acting governor of the Commonwealth Bank, Mr. Kell, opposed the proposition, but the private banks got not only that £10,000,000 but also an additional £10,000,000 in the following year. Here was the trick. All the banks had to do was to lend against that £30,000,000. They had the right to draw against it, and if they did so, they had to pay interest at a certain rate. But they could lend almost £200,000,000, against the £30,000,000 worth of notes printed for them, which they did not take up. Can you imagine any bigger racket than that? Incompetent and corrupt governments have been responsible for the rise of Mussolini and Hitler. However, I am tired of reiterating these facts. It is time that members of the Opposition in this chamber found out for themselves whether what I am saying is right or wrong. Every honorable senator has sworn to do his best for his country, and, particularly during a time like the present, he should find out for himself whether what I am saying is correct. If he fails to do so he will be failing in his duty as a member of this Parliament.

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