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Wednesday, 21 September 1949

Mr MENZIES (Kooyong) (Leader of the Opposition) . - The honorable member for Parkes (Mr. Haylen) ' has taken advantage of the sixteen minutes that he has had on the air since the dinner adjournment to dredge the gutter. It has been very entertaining, of course; and I could not fail to notice that a great number of his colleagues enjoyed his remarks; but I do not think that I have ever heard a more deplorable performance in my life. He has dredged the gutter to discover what may or may not be said against some persons who, I could not avoid noticing, had failed in most cases to secure selection as candidates for my party. I venture to say that, when the honorable member interlarded his deplorable speech with the unctuous advice to "keep it clean", he might have taken the advice himself. After all, he is not invulnerable in such matters. I have a very vivid recollection of an honorable member for Parkes, who had been the editor of the Standard-

Mr Haylen - The old one !

Mr MENZIES - Yes, and nonetheless true for being old. After all, the honorable gentleman will find nobody on this side of the chamber about whom the proprietors of a Labour newspaper have had to publish on their back page a crawling apology for a defamatory publication about a well-known man. That publication had been written by the honorable member for Parkes and the proprietors had to say that either it had been published recklessly, without care for its truth or falsehood, or that it was deliberately untrue.

Mr Haylen - I rise to order, Mr. Deputy Speaker. I would not interpolate at this stage except to correct a deliberate misstatement.

The DEPUTY CHAIRMAN (Mr. Burke). - Order !


The DEPUTY CHAIRMAN. - The Chair already has one point of order before it.

Mr Harrison - Let us take a point of order.

The DEPUTY CHAIRMAN.- Order ! The Chair, not the Opposition, will deal with this matter.

Mr Haylen - I have explained before that the apology was not written-

Mr DEPUTY CHAIRMAN - Order ! The honorable gentleman may make an explanation later if he claims that he has been misrepresented.

Mr MENZIES - The whole point of my observation is that a very old and wise saying is " Physician, heal thyself ".

I do not propose to occupy my time in correcting all the misstatements made by Government speakers in the course of a very remarkable debate - I would not occupy my time in that way - but I do want to make two comments on some earlier aspects of this debate, and each of them has relation to a very important speech made in this House last week by the Minister for External Territories (Mr. Ward). The Minister for External Territories, in the course of his remarks, touched on two matters in particular. One was communism, about which something has been said in this debate, and the other was banking. On the subject of communism, it was interesting to note that the Minister, speaking from his place at the table, with all the authority of a Minister, and speaking, as I have insisted time after time, on behalf of the Government, said this -

I do not share the opinion of some honorable members that there is a real menace of communism in this country.

That is the view of the Government - that there is no real menace of communism, in this country - and that remark was made right on the heels of a coal strike that was described by the Government itself, in numerous press advertisements, as the product of a Communist conspiracy. That coal strike lost this nation £100,000,000 worth of production and lost the employed people of this country probably more than £30.000,000 in pay. l' should have thought that any movement that could produce those results in Australia should be regarded as a menace to the country. Yet, in spite of that experience, and it is the most recent of a long line of experiences, the Minister for External Territories says that there is no real menace of communism in Australia. His second statement had to deal with banking, and I quote his words merely to express my gratitude to him for having stated the position fully and clearly in words that I hope will become well-known all round Australia. A lot of people, who are bitterly opposed to nationalization of banking, are tempted to suppose that the issue is dead, but the Minister, I hope, has removed any misapprehension of that kind, because what he said was this -

It is quite true that Labour has not been able to go as far as it would have liked with its banking policy.

Later he said -

So, as long as the La,bour party stands by its decision, the nationalization of banking will be brought about. Tests of the constitutionality of Labour's proposal may be made by certain authorities, but surely no honorable member opposite would argue that any authority is greater than the voice of the people. If the people continue to return Labour governments that are pledged to the nationalization of banking, why should not such a policy be put into effect? Could not all the obstacles be overcome at the will of the people? By answering the arguments of our opponents we hope to make it clear to the people that in their own interests the banking institutions of this country should be nationalized.

That is a characteristically clear statement by the Minister. He does not usually engage in ambiguous expressions. There is a clear statement that the nationalization of banking is at this very moment on the board, that it is a live issue and that a vote for the Socialist Government will be inevitably a vote for nationalization of banking. I am indebted to the Minister for having made that clear.

Beyond those comments, I do not propose to discuss the speeches that have fallen from members on the opposite side, but I want to make one comment on the budget as originally delivered by the Treasurer (Mr. Chifley) and then to say something about the statement of the right honorable gentleman on the devaluation of the currency, which, of course, is a subject open for discussion during the budget debate. Every honorable member knows that frequent references are made to the national income. The rise in the national income, which has been very considerable in the last ten years, is claimed by honorable gentlemen opposite as a tribute in some way to their skill and as, of itself, an indication of rising prosperity in the country. It is therefore necessary that a brief examination should be made of what this national income is, because the term is constantly misused and, I am afraid, constantly misunderstood. If honorable gentlemen will look at the treasury statement, " National Income and Expenditure 1948-49 ", which was circulated by the Prime Minister in conjunction with the budget, they will see what this expression " national income " means. It means the sum total of five items. The first is wages, salaries, pay of forces and so on. The second is company income. The third is surplus of public authority business undertakings. The fourth is income of unincorporated business, farms, professions and so on. The fifth is net rent and interest. Those are the five items that, on the treasury statement, make up what we are pleased to call the national income. If honorable members have those five items in mind, they will see that it is perfectly clear that if wages and other incomes rise, but the volume of goods from local production or import stay still, the only effect of the rise in the national income would be to create inflation and to put an immediate pressure on the prices level. In other words, a rise in the figure of the national income does not indicate a rise in living standards. It is, indeed, only a measure of inflation, and, therefore, something that will produce a fall in the living standards, unless, side by side with it, there goes a corresponding rise in national production and in the volume of goods coming from elsewhere and available to be sold. I can illustrate that in a perfectly simple way. So as to show the hollowness of this claim that the rise in the national income is, of itself, a good thing, we have had rents pegged in Australia for the last seven years, and, because rents have been pegged and because there has been, quite rightly, I think, up to the present time, a policy of low interest rates, which was begun at the beginning of the war, rents and interest have increased by only 23 per cent, since just before the war. They have risen from £59,000,000 to £73,000,000. That is a rise of 23 per cent. At the same time, wages and salaries have increased by 237 per cent., from £444,000,000 to £1,055,000,000. Of course, there are more people employed. I am not saying anything at all about that at the moment. I am taking the total figures. Wages and salaries have increased from £444,000,000 to £1,055,000,000, an increase of 237 per cent., and rents and interest have risen from £59,000,000 to £73,000,000, an increase of 23 per cent., which is only one-tenth or one-eleventh of the increase in the other category. Suppose to-morrow we unpegged rents and allowed them to run free, there would be a substantial addition to the national income. There would be millions and millions of pounds, no doubt, put on to the national income because rents had been unpegged. Yet, in the first place, at least, there would be no more houses and, therefore, no increase in living standards.

One could, to-morrow, without the slightest difficulty, put on to the so-called national income of Australia, hundreds of millions of pounds by increasing the basic wage by £3 a week. But, should we, thereby, have any more goods to buy? Should we have any more houses to occupy? Of course not! Therefore, the effect of the increase in the national income in those circumstances would be merely inflationary. Prices would rise and every one, to that extent, would be worse off.

I have mentioned that matter with some particularity, because I want to bring my argument back again to the point that the real index of national prosperity is to be found in the production figures. What can we buy with our money? The real index of national prosperity is how much value there is in our pound. I believe that the real task in 1949-50 is to bring back value to the pound. I am not going into the details of production. We all know that we have grave shortages of production in basic industries such as the coal, steel, and timber industries and in the output of bricks. Last night the honorable member for Wentworth (Mr. Harrison) related to the House some striking figures with relation to production, which I do not propose to repeat. All I emphasize is that we do badly when we talk so much in terms of national income as the index when the only real index of prosperity is what the average citizen can buy. The test is, what can he get?

Now I turn to the very important matter that was brought before the House officially yesterday by the Prime Minister, the devaluation of sterling, and the corresponding devaluation of the Australian pound. Decisions have been taken. The British Government has announced a very heavy devaluation of sterling in terms of dollars, under which the pound sterling instead of being worth 4.03 dollars is now worth 2.80 dollars, a devaluation of over 30 per cent. At the same time, or immediately thereupon, the Prime Minister announced that the Australian pound would continue to have the same relation to the sterling pound as it has had for some years past; that is to say, it would remain at a discount of 25 per cent. Those were decisions of the first magnitude, and of great importance, the result of which we cannot yet clearly estimate. I have no doubt that in each instance there were very weighty reasons, some known to us, and some quite intelligible to all honorable members. I should like to say that the Prime Minister had to make a decision on a very difficult problem, and honorable members on this side of the chamber do not desire to challenge the decision that he made. This was primarily a decision of Sir Stafford Cripps, the British Chancellor of the Exchequer, whose position is not perhaps so immediately intelligible. He had created a curious atmosphere for months past in relation to devaluation. Time after time he has said that he would never desert the pound. Time after time he and his colleagues in Parliament have said there would be no devaluation. I might slightly adapt and apply the old tag, to him by saying that though he declared that he would ne'er consent, he consented. The particular terms of the recent Washington agreement that became known to us included, I thought, a series of rather vague statements perhaps very much lagging in definition. One concerned a reduction in the cost of sterling goods designed for the dollar market. In the face of that statement I thought that devaluation seemed quite inevitable,' in order to produce quick results on the earnings of dollars by reducing the costs of British goods designed for the American market. However that may be, I think we can all say, with perhaps the exception of the Prime Minister, that the rate of British devaluation was unexpectedly high. A devaluation of 30.5 per cent, in the value of the pound in terms of dollars was, I think, a great deal steeper than most people expected to read about.

Be all these things as they may, what I want to discuss to-night, and I hope to do it with relative brevity, is what may happen in consequence of those decisions. What is going to be the effect of them? I am not at all speaking ex cathedra on this matter because my opinion, whatever it is, is no better than anybody else's, but I think that it is most desirable to seek to discover what is likely to happen as a result. Assuming that the American market responds to lower prices for British exports, that American tariffs do not stand in the way of the entry of the goods into the United States of America, and that competing measures are not taken by business interests in the United States of America to prevent the benefits of devaluation from coming about, one would expect to see increased sales of British goods in the United States of America. As fewer dollars will buy the same number of pounds the prices of British goods in the United States of America will be less in terms of dollars. Therefore those goods will be cheaper on the American market, though standing at the same price on the British market. Therefore it is expected that buyers will be found who otherwise would not be interested in those goods. Sir Stafford Cripps gave an admirable example. He referred to an English motor car which, at the old rate of exchange, sold in the United States of America for 1,200 dollars, but which, at the new rate of exchange would be sold for 900 dollars. By reducing the consumer price for that car in the United States of America more buyers might be expected to come forward. Although in broad principles that is true enough, goodness knows it is by no means automatic, because there is more in selling than mere price. It cannot be treated as a simple sum in arithmetic. Let us assume that there will be increased sales of British goods in the United States of America as a result of devaluation. The increase will be necessary if this tremendous experiment is to succeed. I invite all honorable members to have a look at those figures. There has been a devaluation of over 30 per cent. That means that Great Britain has to sell in the United States of America 44 per cent, more goods to raise the same amount of dollars as it has been raising. A 30 per cent, cut in the rate of exchange - honorable members can check that figure by a simple calculation - means that 44 per cent, more goods will have to be sold. Let us consider a single line of goods, such as the Morris motor car. I emphasize I am not seeking to advertise any particular make of motor car. If the same amount of dollars is to be obtained from sales of Morris motor cars in the United States as before devaluation, 44 per cent, more of those cars will have to be sold. For every 1,000 Morris motor cars sold in the United States of America previously, 1,440 will have to be sold before Great Britain. breaks even. Having sold 44 per cent, more goods Great Britain will obtain the same volume of dollars under the new exchange rate as it was getting last week. Of course Great Britain will even then be no better off; in fact it will be worse off up to that point, because its people will have to do a lot more work and use a lot more materials in order to produce the same number of dollars. In point of fact less dollars may be received. A 44 per cent, improvement in sales would merely enable Great Britain to break even. But that is not what is wanted. What is being sought to-day is to increase very substantially the British earings of dollars, not merely to increase the export of goods, because up to 44 per cent, the increase that does not mean a thing. If there is to be a real improvement of the dollar position and if devaluation is to have any real effect upon it, British exports must increase by 44 per cent, plus - shall I say - another 100 per cent. I suppose it would be fair to say that devaluation will not help to solve the dollar problem unless British exports to the dollar areas increase by approximately 150 per cent. That ' is a tremendous undertaking. It means that certain internal re-arrangements will have to be made in Great Britain. I shall refer to them ' because they are all of great moment to us. It may mean that there will be a great production drive in Great Britain designed to increase the volume of British exports to the United States of America and at the same time to maintain the volume of British exports to countries like Australia, which are, of course, profoundly important markets for Great Britain, If there is to be a great production drive in a country in which there is already full employment, it is quite clear that drastic steps must be taken to increase individual output, whether it be on the managerial level, the scientific level or the level of the employee in the works.

Suppose that that does not happen, and that there is not a remarkable increase of production in Great Britain, but a substantial increase of exports to the dollar market as a result of devaluation. If that occurs, there will be a diminution of exports to the non-dollar markets. Great Britain will export less goods to Australia and to other countries that have bought in the sterling market. If British exports to Australia are reduced, there will be a gap in our imports. We need those imports. We are not introducing imports into Australia foolishly. Goods which come into this country are available to be bought, and without them the prices of our local products would rise beyond all reason. There would be an accentuation of our previous troubles when we had a lot of money chasing a limited1 supply of goods. I am sure that the Prime Minister will agree that at present imports are vital to our general economic structure. If they do not come in any degree from Great Britain, that is, if there is a marked reduction of imports from that country, we must get them from some other place or fill the gap by stimulating our own production. If we are to stimulate our own production at a time when we have full employment, and at a time when we have, on balance, a shortage of manpower, we shall have to resort to methods of stimulation against which, I am afraid, the Government has in the past turned its face. If we say, "If as a result of the devaluation of sterling Great Britain sells more goods to America and less goods to us, we shall get our goods from elsewhere ", we shall be confronted with a problem which I, for one, find extremely vexing.

From what other source could we get the goods that we have been getting from Great Britain? An attempt was made a little while ago to suggest that the leaders of the Opposition parties have a passionate desire to trade with Japan. Let me remind the committee that trade with Japan is reviving, and that this country, under the present administration, has had to recognize Japanese trade. In point of fact, we have had to import steel from Japan. Before the war, Germany and Japan were formidable competitors in world trade. They were both great exporters." To-day they are trifling exporters. Does any honorable member suppose -nhat they are not going to become great exporters again? I am sure that they are. Whatever feelings people may have, nothing on' earth can prevent Germany and Japan from once more becoming traders in the world, not necessarily to-day but in due course of time. That is a fact that we have to recognize. If Germany and Japan begin to supply the world's needs again at a time when Great Britain cannot supply our needs, a state of affairs will arise that is calculated to give one furiously to think. If the United Kingdom share of our market were to be substantially reduced, our vital market in the United Kingdom would become imperilled in its turn. If there is a perfect example of two-way trade, it is the trade between the United Kingdom and Australia. The United Kingdom has been our best market and we have been one of its best markets. By reason of our lack of numbers, we could not hope to be its best market in the aggregate total of goods, but I am sure that per capita we have been, with the possible exception of New Zealand, the best market of the United Kingdom. If there were a serious replacement of British exports to Australia by exports from other countries, to that extent our market in the United Kingdom would be imperilled. I hope that I am not wearying the committee, but I have been trying to clarify my own mind on this matter and what I have said may, therefore, be useful.

Another result of devaluation is that British imports from dollar countries will increase in price in the United Kingdom, for the very converse of the reasons that I have been advancing. If dollars are to be dearer in terms of pounds, then dollar goods will be dearer in terms of pounds and American goods exported to Great Britain will increase in price in Great Britain. That is a very serious matter. I remind honorable members that one of the great reasons for the dollar shortage in the world is that Great Britain, as a big trading nation, has been earning less dollars than it has been spending. The value of the goods that it has been importing from dollar countries has been considerably greater than the amount of money that it has been able to earn by exporting goods to those countries. As a result, as the Prime Minister has explained, the dollar problem of Great Britain has steadily become worse. An increase of the cost in Britain of imports from dollar countries will be a very serious matter for the British people. The moment that happens, prices will rise in Great Britain. If there is an increase in Great Britain of ihe price of a variety of articles, including food, and I remind the committee that Britain has to obtain a great deal of food from the dollar areas, there must *be an upward pressure upon wages and the cost of social services. "Will that pressure be resisted? Sir Stafford Cripps, the British Chancellor of the Exchequer, has so far been successful in imposing his will upon the trade union movement in Great Britain and in persuading trade unionists that they ought to call a holiday on wage increases until this crisis has been surmounted, but one of the troubles is that most of the unionists do not believe that there is a crisis. It is not very easy for a man to believe that there is a crisis in the world if his wages are coming in regularly. It is one of those hidden but almost devastating things that can happen in the world. I read in this evening's press - and I read it without any satisfaction, because we are all interested in the problem of stability - that the Trade Union Congress in Great Britain has decided that it does not approve of the devaluation of the pound. If that is so, is it likely that British trade unionists will call a holiday on wage increases? Under the circumstances, is it not far more likely that rising prices will lead- to demands for increased wages, and that increased wages and greater expenditure upon social services will affect costs of production and result in higher costs ? If costs of production in Great Britain are to be higher, what becomes of the great idea that Britain is going to enter the dollar market in a big way and sell its goods to dollar countries at prices the people of those countries are willing to pay?

The circumstances that I have referred to are major elements in this problem, and there are many others that I have no time to discuss, that also show that devaluation doe3 not solve the problem. I am not offering to show that either the British Government or the British Chancellor of the Exchequer, who is a man of great ability in these matters, is wrong. All I am saying is that the devaluation of the pound does not solve the problem. On the contrary, it gives rise to a series of subsidiary problems, all of which will require very firm, and, perhaps drastic action if the devaluation scheme is to succeed at all. A few days ago I read in the House of Lords Debates a debate on a finance bill. It is quite a recent debate, because it occurred on the 25th July last. It is curious to realize that that discussion occurred only seven weeks ago. I read it because I desired to learn the views of Lord Brand, who is a man perhaps known to the Treasurer, because he was for many years head of Lazard Brothers, a banking firm in the City of London, and a man of great ability and experience. He said -

For my part, though I am not an economist, I have never been convinced that devaluation could do us any good; indeed, I feel that it might do a lot of harm, because the immediate result must be that whilst our exports could be sold for fewer dollars, so that they would be cheaper to the purchaser, we should have to sell many more exports in order to obtain the same amount of dollars as we obtained before. That would be a rather considerable undertaking. One other immediate result that would follow before we could achieve the increase of exports would be that we should have to pay much more for all that we imported. In view of these considerations . . .

Lord Brand continued in words which I quote more or less whimsically in view of later events - . .1 confess that I am glad that this Government has no intention whatever of entering into this rash experiment. And I am pleased to find that on all sides of this House that policy is supported.

I have merely quoted Lord Brand's statement to show how extremely fluid those events have been. But what I desire to emphasize, and I am sure that the Treasurer will agree with me, is that although devaluation will give a breathing space, far from solving the problem out of hand, far from making high production less important, it unquestionably makes high production more important than before. To sum up what I have been putting to the committee I would- say that Great Britain cannot get away with this devaluation expedient successfully unless there is a rise of production in Great Britain sufficient to enlarge its American market very considerably and sufficient to maintain its exports to countries like Australia that, in the long run, are of immense and permanent importance to Great Britain. All these are considerations that affect Great Britain in the direct sense.

But there are some considerations that are of special significance .to Australia. Those that I have already referred to have an obvious bearing on Australia, but there are some others that are also of special concern to us. Some of the latter considerations are favorable, and some are not. I shall indicate them in the fewest possible words. First we shall have an increase of the cost of some imports from Britain. I mention that because I have found that some people are disposed to say that the devaluation of the pound will not affect the position between Great Britain and Australia, because our pound has been devalued in relation to the British pound, and that naturally trade between Britain and Australia will not show any effects of the sterling devaluation. But, of course, there will be effects. There are many British exports to Australia, such as cotton textiles, which have what the Treasurer has described in connexion with another matter, as a " dollar content ". If dollar raw materials go into English factories, and the articles manufactured from them are exported to this country, then the rise in the costs of production in England as a result of the devaluation of the British pound will result in a rise in the price that we shall have to pay for these goods.

Secondly, we shall have a sharp rise in the cost of our own direct dollar imports, which cover a range of goods with which honorable members are familiar. I merely instance petrol, tobacco, timber and, to a limited extent now, I suppose, films, as well as machinery such as earthmoving equipment, tractors and other machinery which is very important to this country and which constitutes what we describe in the broad as " capital goods ". On the other hand, we shall have some benefits, or at least we hope to have some. There may be some increase in the price of wool and in the quantity that we sell. We hope that as a result of America's more favorable monetary position which is the result of devaluation the United States of America will come into our wool market more than it has done recently, and so not only become a big customer again but also, by increasing the competition, help to raise wool prices. We stall have some benefit in relation to wheat, as the Minister for Commerce and Agriculture (Mr. Pollard) pointed out this afternoon, as the result of the International Wheat Agreement being based on the Canadian dollar. We shall have a substantial net return from gold with, I hope, increased production from what are now marginal gold-mines. We shall have the maintenance of the Australian pound prices for other primary products which we have sold on a sterling basis. All those considerations including the first two that I mentioned, are favorable to us. Australian manufacturers will have the satisfaction of knowing that there is a maintenance of the productive incidence of the appreciated. British pound which is the invisible tariff that Australian manufacturers have been enjoying ever since the exchange rate between the Australian pound and the British pound was fixed.

Balancing these advantages and disadvantages, there are still dangers which we in Australia must realize and whch we must meet. Unless the American demand for our exports increases proportionately more than the percentage rate of depreciation, that is to say, unless America's purchases exceed by more than 44 per cent, its present purchases, we shall be no better off in terms of dollars as a result of devaluation. If America makes a big increase of its purchases from us then we shall be better off. But it may well be that we shall find ourselves not making any greater contribution to the dollar pool but perhaps, to some extent, making bigger demands on it than before. I also point out, and I hope that the Treasurer will bear this constantly in mind, that to the extent to which devaluation of our currency increases our overseas income, to that extent there must be an inflationary pressure on the whole of the Australian price level, unless of course we counteract it by an enormously increased production. But if production stands where it is to-day, we shall have an inflationary pressure that will tend to force up prices, wages and costs.

Having all these considerations in mind, I believe that it is more than ever necessary that we should concentrate on the achievement of a sound national economy, that is to say, we should concentrate on the expansion of productive industry by every means available to us. "We cannot play around with this subject. Vastly increased production is absolutely vital to us, and that means that we must face up to the fact that we must get increased production by incentive payments wherever they can be applied and used. We must achieve a greater unit production, which means a greater production per man. I believe that there is a strong case in these circumstances for some revision of company taxation in order to encourage the establishment of proper reserves, and also expansion, particularly of small companies. There is also a strong case for the encouragement of savings out of which we can secure " adventure " capital without which there will be no " adventure " development of production in Australia. And, finally, but by no means least, we must have industrial peace because industrial disputes are, I suppose, one of the great factors operating to-day against a full stream of production in Australia. The consequence of these achievements would be a reduction in the unit cost of articles and a rise in real incomes and real wages through falling prices. Let us remember that. If we can by productive methods bring down prices in Australia we shall be putting value back into the pound. In addition to those things the adoption of such a procedure would mean that we should be maintaining not full employment merely in terms, but full and stable productive employment. These are not separate matters that can be dealt with as if they existed in a vacuum, they are interdependent. But I believe that they alone can produce for us in these circumstances, or in any other circumstances we can see, a higher real national income.

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