4th Parliament · 1st Session
The President took the chair at 10.30 a.m., and read prayers.
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– Will the Minister representing the Postmaster-General cause inquiries to be made as to why letters which reached Melbourne yesterday morning by the Adelaide express were not delivered at Parliament House until this morning?
– I shall cause inquiries to be made. Perhaps the honorable senator is unaware of the” fact that yesterday was a public holiday in Melbourne.
-Colonel Sir Albert Gould. - Was there only one delivery of letters?
– Only the morning delivery, I understand. I anticipated the receipt of important letters here in the afternoon, but they did not come until this morning, when I was told that there was no delivery yesterday afternoon.
– Arising out of the reply, may I ask the Minister whether yesterday was not an ordinary holiday declared on account of an agricultural show for State purposes, and, if so, whether that affected the delivery of letters?
– The holiday was generally, observed in the Commonwealth Departments, . which, as the honorable senator knows, include the Post and Telegraph Department.
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asked the Minister representing the Postmaster-General, upon notice -
Is it the case that some contract and semiofficial post and telegraph offices in Queensland are in charge of persons who cannot read their call, and that one of those officers recently took two and a half hours to dispose of an eighteenword message?
– Inquiries, are being made, and the desired information will be furnished as soon as possible.
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Bill read a third time.
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Senator McGREGOR (South Australia - Vice-President of the Executive Coun
That this Bill be now read a second time.
We are now arriving, it would appear from the agitation which has been conducted in the press for a considerable time, and from expressions of opinion publicly made by prominent citizens, at the consideration of one of those debatable questions, which, under the Constitution, must occasionally come before this Parliament. By paragraph xii., section 51, of the Constitution, the control of currency, coinage, and legal tender is vested entirely in the Commonwealth, and this Bill merely carries out the intentions of the gentlemen who, more than ten ar eleven years ago, formulated the Constitution. Everything in the world has its own peculiar history. And currency has had a history extending from the time when our forefathers- were, for the sake of convenience, prepared to ‘ ‘ swop ‘ ‘ their products, until the time when they were prepared to take each other’s word in the shape of credit. In fact, the system of currency may be said to have grown up gradually. The Commonwealth has always had control of the gold currency. It has taken control of the silver and copper currency, and in the opinion of the .present Government, it should take control of the paper currency. That opinion is not of very recent formation. For years past it has been held by not only the members of the Government but the members of the party which we represent. This Bill is only one step in the direction of the achievement of their ultimate aims, so far as the currency and financial affairs of Australia are concerned. If there had been any doubt - if the Constitution had not given the fullest power to this Parliament to deal with the currency of the country - there might have been some differences of opinion as to the wisdom of submitting any legislation on this subject. There is no doubt that we possess that power, and, realizing the advisableness of exercising it, we have brought in this Bill. No one has questioned the authority of this Parliament in connexion with the gold currency. No one has said a word against the advisableness of our having the control of the gold currency. And when it was proposed that the Commonwealth should also take control of the silver coinage, and give to the people that protection which this Parliament alone can givethe security of the public credit of the Commonwealth - no serious objection was raised. Yet there was just as much danger in taking over the silver currency as there is in taking over, for instance, the paper currency.
– I might remind the honorable senator that if this Parliament thought fit, it could make silver legal tender to an unlimited amount.
– But it has %not thought fit.
– No, and I do not suggest for a moment that the honorable senator would attempt to provoke Parliament to do so. If, however, any trickery were attempted to be played in connexion with the silver currency, does he think that the Government of the Commonwealth would hesitate for a moment, in the interests of the whole people, to put an end to the financial dodgery? Having the control of the gold and the silver currency, the Government came to the conclusion that, in the interests of the whole people, it was time that the Commonwealth acquired absolute control of the paper currency, and for that purpose this Bill was introduced. I have heard statements read from many metropolitan newspapers, and listened to statements made as to the great calamity which will take place if the Commonwealth takes over the control of the paper currency and makes itself responsible for any kind of an Australian note. But who raised this great cry? The friends of the people in the past, who were prepared, when their own interests were at stake, to take up the case of the poor widow, the poor orphan, the poor farmer, and the poor investor, and the poor everybody else ! They never thought for a moment about the rich. They always realized that the rich would take care of themselves. They were ever the advocates of the .poor somebody or other. As regards an Australian note issue, they might consider for an instant the interests of the poor papermakers, but I should not ask them to do anything so ridiculous. What are they making a noise about?
– Who is making a noise?
-Colonel Sir Albert Gould. - Senator McGregor.
– I intend to make a noise for a few minutes j but the noise that I was referring to is over; the sound is dying away.
– So much the better.
– But the honorable senator will not deny that there have been deputations of bank managers to interview the Treasurer in connexion with this measure. He will not deny that there have been one or two proposals made with respect to those notes by the representatives ofthegreatfinancial institutions in Australia. The honorable senator will not deny that at meetings of bank directors, Chambers of Commerce, Chambers of Manufactures, and other institutions of that description, the question has been discussed, and a considerable amount of noise has been made.
– Surely the honorable senator does not object to inquiry?
– The honorable senator can rest assured that the members of the present Government have no desire to burk inquiry. We are prepared to give every assistance with the object of making everything so plain that the man who runs may read. The honorable senator will not deny that an outcry was made in some sections of the press as to the dangers that would arise from the Commonwealth Government taking control of the paper currency.
– I was never one of those who objected on principle to the Commonwealth Government ‘doing what is proposed.
– We all recognise that Senator Walker is a fair-minded man, and one who has had a great amount of banking experience. Consequently, we did not expect that he would object to the principle. He cannot, however, deny that the press which supports his party has howled, wailed, and wept on account of this measure. It has maintained this attitude professedly in the interests of the struggling masses who find it difficult enough to get a sovereign or a halfsovereign, let alone a£10 note. I wish to show that there is nothing dangerous in this proposal, and that, indeed, it is in the interests and for the security of the great bulk of our people. Doubtless Senator Walker will take up the shibboleth of stability, elasticity, and convertibility. Those are, indeed, important considerations. We must expect that he will lay emphasis upon them. I have not the least doubt that he will attempt to make the Bill as perfect from his point of view as he can. As, however, we think that it is perfect at present, we have no desire to assist in its mutilation. As to the stability of a paper currency, is there a man in Australia who in his heart believes that a currency backed by the whole credit of the Commonwealth is not more stable and secure than can be a currency controlled by a number of private institutions? Although, naturally, Senator Walker believes in the infallibility of the Bank of New South Wales, the Australian Mutual Provident Society, and similar institutions, he cannot deny that the security of the whole Commonwealth of Australia makes for greater stability. The acknowledgment of that fact shatters the nonsense that has been uttered from public platforms and reiterated in the press with regard to elasticity.
– Would not that consideration apply to State banks also?
-I am not troubled at present about State banks or private institutions. I simply desire to show that every provision is made to conserve the interests of the people in relation to the elasticity of this currency. We do not want a currency that will be started at the top of the hill and flow down uncontrolled into every valley, without any restriction or supervision, and without anything to prevent the introduction of fraud or deceit. But we want our currency to be so controlled and managed that there will be the least possible difficulty between the holders of Australian notes and the general public. We propose to make these notes legal tender throughout the whole Commonwealth and all its Territories. When a man has in his pocket an instrument of exchange that he can convert for goods that he requires anywhere in Australia, what more is needed on the grounds of elasticity ? Does any one want to have officials travelling round in the steamers and trains with bags of gold, so that paper may be exchanged for bullion at the whim of any individual ? I am sure that that is not required. As long as a person can purchase anything that he desires with Australian notes, no more is wanted. It will be urged that persons may wish to- convert Australian notes into the currency of other countries. In the first place, does any man imagine that Australian notes will be of no use abroad? Is it supposed that the discount demanded on them will be so great that it will not pay persons to take them elsewhere? Now, it is a remarkable thing that a person can exchange a Bank of England £5 note for five sovereigns in Australia.
– It costs 2s. 6d. to cash a ^5 Bank of England note.
– Whenever I have had the good fortune to become possessed of a Bank of England note I found that any shop in Australia would take it as legal tender. I have never experienced any difficulty in that direction.
-Colonel Sir Albert Gould. - Has the honorable senator had occasion to change many Bank of England notes in Australia ?
- Senator Gould knows very well that I have not. I have not been fortunate enough to possess many. But I anticipated a query of that description, and was prepared for it. I am a member of the general public, and as such represent nine-tenths of the people of Australia. My financial operations may be taken as similar to those of nine- tenths of our people. I say again that I found no difficulty, when I was lucky enough to get a Bank of England note, in exchanging it for its face value, and I presume that nine-tenths of the people of Australia would be equally able to do so. Consequently I say that there is no difficulty in readily converting a stable paper currency. I should consider myself very fortunate if, after the passage of this Bill, I had a few thousand Australian notes, and went to England with them. I believe that in a very short time the financial and business people in Great Britain will recognise that Australian notes are just as good as sovereigns. If in the past notes issued by private financial institutions have been treated fairly in Great Britain, there is not the slightest ground for thinking that Commonwealth notes will not be treated fairly.
– If the honorable senator goes to a money broker in Cornhill, London, hie will find that he will have to pay 10 per cent, at present on the exchange of the best Australian bank notes.
– I do not blame the brokers ‘for that. I have been thirty years in Australia and know what has occurred.
– I have been here sixty years.
– The honorable senator does not seem to be much wiser than when he first came.
– I did not expect that from the honorable senator.
– I shall be quite willing to disabuse my mind of that idea if I am assured that Senator Fraser intends to support the passage of this Bill. I shall show why Australian notes have not in the past been received as, perhaps, we should have liked them to be received in England and elsewhere. Many of us remember what occurred in the early nineties. I will relate what occurred in the late eighties. We had carrying on business in Adelaide a bank known as the Commercial Bank of South Australia. A cousin of mine came down from the country and took out three drafts on the Commercial Bank of South Australia, drawn on the City Bank in Sydney. He came to Melbourne and left one of the drafts with me, taking the other two with him to Sydney. During his passage between Melbourne and Sydney the Commercial Bank of South Australia closed its doors. When he presented his drafts he could not get anything for them. The securities of the bank, no doubt, were liable, because this was the money of a depositor, but this poor fellow was stuck up, all the same. He sold two drafts for ^35 each for £5 in Sydney. No doubt, I shall be told that he was a very foolish man, but there was a pistol held at his head, and that is why he gave up his drafts. If a man held a pistol at Senator Walker’s head in similar circumstances, he would give up the drafts in a moment. I do not say that this man would have been at any loss if he could have held his drafts, but he could not do so. He could not get lodgings or food, and the necessity to obtain both was the pistol held at his head. He was bound to take what he could get. I may say that many years later the draft he left with me was paid in gold to the last farthing, but he had to wait for four or five years before the last dividend was paid. Then the crash of 1893 came, and every one knows how the paper money of every bank in Australia was fluttering in the hands of every citizen who held it. We know that the State Governments had to come to the assistance of many of the banks in order to put an end to that crisis. We know, also, that, as there is telegraphic and mail communication with other parts of the world, people there became acquainted with the facts, and, on the assumption that what had happened in the past might happen again, they felt that it was necessary for them to protect themselves, and so the notes of Australian private banks could only be exchanged for . coin at a considerable discount in London and in other places. But an Australian note, backed up by the credit of the whole of the Commonwealth, will be in a very different position in London and everywhere else.
– The honorable senator will admit that Bank of England notes are as good in Australia as Australian notes are likely to be in London.
– They are good enough for me. Any I get slip away from me quickly enough, and I cannot complain of their elasticity. I have dealt with the nine-tenths of the people who will be satisfied with the Australian notes, and now I say that, suppose some of the remaining one-tenth, who happen to have large amounts in Australian notes in their possession, wish to convert them in order that they may go to other parts of the world on pleasure or business, they will have no difficulty whatever,- because they will be in a position to apply to the Treasury at the Seat of Government, and get gold for all the notes they hold. To disabuse the minds of honorable senators further on the question of the elasticity of the proposed note issue, I would ask them whether they think that, if I had twenty or thirty of these notes which I wished to convert into gold, -I should have the slightest difficulty in doing so in any bank in any capital of Australia. Honorable senators must know that the banks would change these notes for gold. They would require to be supplied with notes from the. Treasury, and it would be easier for them to take my notes, and pass me sovereigns for them over the counter, than it would be for them to have to go to the Treasury for all the notes they require.
– There has been no difficulty in getting gold for Queensland Treasury notes so far.
– I was going to refer to that. This is a new proposal as applied to the whole of Australia, but a similar currency has been in existence for seventeen years in Queensland, and none of the difficulties which are now suggested have ever arisen in that State, although every one of them were predicted by the opponents of the Queensland Treasury Notes Bill when it was introduced in the State Parliament in 1893. We may argue that as objections and prophecies of disaster made in connexion with the Queensland Treasury note issue have been found to be unfounded and false, similar objections will be found to be equally without foundation and false as applied to a note issue for the whole of the Commonwealth. Indeed, so far as the elasticity of the proposed Australian note is concerned, it will have an enormous advantage, as compared, not only with” the notes of any financial institution in Australia, but with a note issue by the whole of them put together in one combination. I think I have said sufficient to satisfy the minds of the friends of this Bill.
– We are all friends.
– I believe we are. So far as I can gather, there are very few opponents of the measure. I am getting past the infancy stage, and am beginning to take notice. I take notice, so far as I can, of everything that occurs. I have noted the fact that some of the metropolitan newspapers were very favorably disposed to this proposal, and spoke the truth, so far as they knew it, on the question. There were other newspapers, however, that raised every objection they possibly could in order to discredit the proposed Australian note issue. They, first of all, tried to discredit “it in the eyes of the poor farmers. They were not satisfied with polluting the minds of the poor farmers by their untruths, but they then tried to discredit the issue in the mind of the poor working man. They suggested that it would be used as a means of reducing his wages. How, in the name of Heaven, could the issue of an Australian note reduce the wages of working men to any greater extent than the issue of a note by any private institution? Will any honorable senator answer that question ?
– Or- the issue of a postal note.
– This was not suggested of the issue of a postal note. The people were invited to believe that the note issue would be taken advantage of, and by whom? By the enemies of the people of Australia - the private financial’ institutions. It was said that they would make use of the notes to take advantage of the people on every occasion. I remind honorable senators that I am not saying that the financial institutions or individuals would do this, but it has been insinuated by the press opposed to this measure that they would take advantage of the people, and that the Australian note would be at a discount. People were led to believe that if a working man’s wife went with a couple of these notes to the grocer, draper, or butcher, she would receive only 17s. 6d. worth for 20s. in Australian notes.
– We could establish Commonwealth groceries then that would give full value for the notes.
– I agree with Senator Stewart, and I am happy to be able to agree with him occasionally. If any of these practices are attempted in connexion with the Australian note issue, I hope the Commonwealth Government will have sufficient power, and will be backed up sufficiently by their supporters, to see that an end is put to any trickery of that description. But no man, speaking from conviction, can say that a poor farmer or poor working man holding an Australian note will not be treated as well as or better than if he held a piece of paper issued by a private banking institution. We know that people holding these notes will be better treated than if they held the notes of private institutions, because the Commonwealth Parliament will make the Australian note legal tender. The newspapers opposing this proposal also said that the value of the Australian note would be depreciated because needy Commonwealth Treasurers would issue paper money beyond the requirements of the people. They have taken great pains to rake up all the past history of the paper currency of every country in the world in the endeavour to prove their statement. But there is nothing in it, because the arguments were based either upon a deliberate intention to pervert the truth or upon the very grossest of ignorance. When the Australian note issue becomes an accomplished fact, not a single note can be issued by the Treasurer of any Commonwealth Government unless the financial institutions or individuals hand to the Treasurer a sovereign for every note issued. The note issue, therefore, so far as the Commonwealth is concerned, can never exceed the requirements of the people of Australia, because they will never have to pay a sovereign for what they do not want. There will be no increasein the circulation of the notes unless it is found necessary for the convenience of the financial institutions or the public. We, therefore, need not fear that there will at any time be an extraordinary issue of Australian notes. The argument based on the false idea that paper money can be issued at the sweet will of a needy Treasurer cannot be sustained for a moment, and the writers and newspapers who have made use of it did so with the de liberate intention of misleading the people, or were so ignorant that they ought to be in a lunatic asylum. There are many phases of the question with which I might deal, but I have no wish to unduly prolong the agony. I need only say now that this proposal is a part of the policy of the Government. It is the policy of the party supporting them, and it was the policy of the framers of the Commonwealth Constitution. Is it not better for us to enact legislation of this character in times of quiet, when there is a complete absence of financial panic, and when no war cloud looms on the horizon to disturb our financial equilibrium, than it would be to enact it under the stress of financial panic, which may arise in the future as it has arisen in the past?
– The danger is that it might be enacted in. time of panic.
– That is the very reason why we ought to deal with this matter now. Although a State note issue was decided upon by Queensland in a time of financial panic, it has nevertheless proved an immense success.
– And it has been secure all the time.
– Yes. I suppose that . Senator Fraser knows all about what happened in Victoria some years ago.
– And in the other States.
– I know that he also possesses an extensive knowledge of the other States. I know that he had an extensive knowledge of them before he came to Australia.
– No, I was only a baby then.
– At any rate, the honorable senator has had a good deal of experience. I therefore ask him whether it is not better that we should enact legislation of this character now than that we should delay its introduction until a time of financial panic? Is it not better that we should deal with the matter now than that we should attempt to deal with it under circumstances similar to those which operated in Victoria in 1894, 1895, or 1896, as the result of the panic of 1893 ?
– All the banks in this State had to reconstruct then.
– Not all of them - only the foolish ones.
– The Bank of Adelaide never reconstructed.
– No, but that is a South Australian bank. Senator Fraser knows perfectly well that at the time of which I speak the people of Victoria became so hysterical that a Royal Commission was appointed to inquire into the advisableness of establishing a State Bank.
– But they were “ boomers “ in those days.
– Are the “boomers” all dead? Has the spirit of boom been laid to rest for ever i
– A great many of the “ boomers “ died at the time of the crisis.
– But many of them remain, and it takes very little leaven to leaven the whole of Victoria. I again ask whether it is not a fact that at a time of hysteria in Victoria a Royal Commission sas appointed which recommended the establishment of a State Bank? Is it not a fact that a Bill was actually introduced into the Victorian Parliament to give effect to that recommendation, and to authorize the issue of State notes? I am relating facts. This action was the result of the financial panic which occurred in 1893.
– May not a similar panic occur again?
– Yes ; that is why we wish to pass this legislation now. But after the hysteria in Victoria had passed away, the parliamentary representatives of conservative banking institutions in this State began to consider what effect the establishment of a State Bank would have upon those institutions. Of course, they all had uncles, cousins, and aunts connected with the banks, and ultimately they said, “ We had better leave things alone,” and they did. The Government think that now is the proper time to do the right thing in as effective a manner as possible in the interests of the whole people of Australia, and of every financial institution in it. This Bill is not designed to strike a blow at any financial institution, but is intended to authorize the Commonwealth to take control, under the provisions of the Constitution, of the whole currency of the Commonwealth. The measure is divided into five parts, which I shall briefly summarize. The first four clauses deal with preliminaries. The Act will come into operation on a date to be proclaimed. The definition clause defines “ Bank,” “ Bank note,” &c, and clause 4 prohibits the issue and circulation of all State notes from and after six months after the commencement of the Act. Part 2 of the Bill, which commences with clause 5, contemplates the creation of an Australian note issue, and provides for the issue, re-issue, and cancellation of such notes. The denomination of these notes is fixed by clause 6 at 10s., £1, £$, ;£io, and any multiple of £io. I very much regret that it does not provide for the issue of a 5s. note. Should experience show that it will be a convenience to the public to have a 5s. note, 1 trust that there will be no hesitation on the part of any Government which may be in power in making the necessary provision for the issue of such a note. But we must first bring this legislation into existence. If, subsequently, any defects are discovered in ft, I hope that we shall always have a Government strong enough to remedy those defects. Clause 7 of the Bill deals with temporary forms. Honorable senators will readily understand that it might be very inconvenient if we had to defer the issue of Australian notes until we secured our own machinery with which to print ;the necessary forms. Consequently we propose to take power to use the machinery which is at present being . employed by financial institutions, and, after stamping the notes which they at present issue, to make them legal tender throughout Australia. Clause 9 deals with the gold reserve. Under the Bill no Australian -£i note can be issued until a sovereign has been paid into the Treasury for it. Therein lies the absolute security of our scheme. The Treasurer is bound to hold in reserve not less than 25 per cent, of that gold to meet any demand for the redemption of the notes.
– Where will the Government get the gold?
– I have just said that no Australian £1 note can be issued until a sovereign has been paid into the Treasury for it.
– Then the Government will get somebody else’s sovereign?
– Certainly. If any person does not desire to have an Australian note, he need not give gold for it. If he does not v/ant it, he need not have it.
– -But he must take it. It is compulsory. ‘
– There is nothing compulsory about the matter. Of course, it may be urged that a 25 per cent, gold reserve is not sufficient, but the experience of Queensland over a period of seventeen years has been that it has never required more than a 12 per cent, gold reserve. Surely the Commonwealth will not occupy a worse position than that occupied by a single State. Consequently, I hold that the provision which is made in the Bill in the matter of a gold reserve is quite adequate. Clause 10 provides that the Treasurer shall not pledge Australian notes. He cannot give ,£250,000 or £500,000 worth of Australian notes to anybody as security for anything. He can only pass them over the Treasury counter and receive a sovereign for every one of them. A 25 per cent, gold reserve is provided for up to an issue of £7,000,000 worth of Australian notes, but beyond that, for every note which is issued, a sovereign must be held in reserve.
– One hundred per cent.
– Exactly. Then provision is made for a monthly statement, and banking institutions are required to make a return in connexion with the issue of notes by them, because a tax will be levied upon those notes. Part 3 of the Bill begins with clause 13, and relates to Treasury bills. This is another security which has been devised by the Government in connexion with the issue of Australian notes.
– Every Government has done it.
– I was going to refer to Queensland, which has adopted the same plan as an additional security. We have the power, under parliamentary authority, to make use approximately of threefourths of the gold received from the issue of Australian notes. The proceeds derived from that source must be paid into the Consolidated Revenue, and the Bill directs how this money shall be invested or dealt with. The Government will also be able to issue Treasury bills to the amount of the Australian notes issued. If there be only a 25 per cent, gold reserve in the Treasury, they will not be able to cash another note. So that honorable senators will see that a necessity exists for providing for a greater margin than 25 per cent, if we are to make the thing legitimate. Under certain conditions, the Treasurer will have complete power to issue Treasury bills for cash, but that cash can be used only for the redemption of Australian notes. That affords the most ample security, so far as the issue of Australian notes is concerned. I need not discuss the details connected with the various clauses, because those matters can be better dealt with in Committee. Clauses 20 to 31 define offences, and prescribe the penalties for them, and in every way protect, not only the Australian note issue, but the issue of Treasury-bills, and, so far as human ingenuity can do, the interests of the Commonwealth. Clause 32 deals with the making of regulations. In legislating on this subject for ‘the first time it is almost impossible to put everything in a rigid form in the Bill, and, therefore, until we obtain greater experience it is very wise to intrust the governing authorities’ with the power to make regulations in certain directions. That power is given in clause 32. The Bill is, I think, one of the most complete, concise, and simple instruments which has ever been placed before a Legislature, and as it is designed in the interests of the whole people, the Government, and everything pertaining to our financial relations one with another, [ have pleasure in moving its second reading.
Senator Lt.-Colonel Sir ALBERT GOULD (New South Wales) [11.31].- At one time it was my intention to suggest that this debate should be adjourned in order that we might have time to fully consider the speech of the Minister in charge of the Bill, but it has since occurred to me that those who are prepared to speak today should have an opportunity of stating their views. That will, of course, tend to facilitate the transaction of business and remove the possibility of a reproach being urged against the Opposition that they were desirous of postponing the consideration of the measure. Some honorable senators on this side are prepared to speak on this occasion, and if other honorable senators should desire time to consider their views, no doubt the Government will be prepared to consent to an adjournment of the debate at a reasonable hour. One remark which Senator McGregor made about the Bill struck me with considerable force, and that was, “ We think it perfect.” If the Government think that the measure is perfect, I assume that it is their intention not to accept any amendments which may be suggested, even with a view to make it still more perfect in the opinion of certain honorable senators. Let us not overlook the fact that originally il was not perfect, but imperfect. It was placed before the other House, as the result of very careful consideration, and the Government were not prepared to depart from its principles or its provisions. But fortunately for both the Government and the country certain important amendments were proposed and accepted, which, to some extent, removed many of the objections which had been urged against its enactment.
– The amendments did not alter the principles at all.
-Colonel Sir ALBERT GOULD. - If the honorable senator believes that the principle of the Bill is simply the issuing of an Australian note and making it legal tender, I admit that the Government have not ‘abandoned it. But very often the acceptance or rejection of a principle is largely dependent upon the surrounding circumstances, that is, with regard to safety. I admit at once that the Bill has been considerably improved since it was drafted. When it was submitted to the other House there was a very strong justification for people urging that it was primarily introduced for the purpose of obtaining a forced loan without the payment of interest.
– That is what I think it should have been.
-Colonel Sir ALBERT GOULD. - That was the way in which the matter first appeared to the public. When the Government proposed to take a forced loan from the public, or from any institutions representing the public, they proposed to borrow the money on unfavorable terms in the interests of the community at large.
– If the banks can do it in the interests of the shareholders, surely the Commonwealth can also do it in the interests of the people?
-Colonel Sir ALBERT GOULD. - Let me point out the position in which the banks stand in regard to the notes. The attitude of the Opposition towards this measure is taken up, not in the interests of any section, but in the interests of the community as a whole. While honorable senators on the other side profess to be speaking in the interests of the community at large, we have to consider how far the Government have studied the whole question of currency before they introduced a measure of this character. What opportunities have they had to study that question so as to be able to come here and present themselves as infallible guides as to what ought to be done?
– Quite as much as your side.
– The whole range of human knowledge is at our disposal.
– Honorable senators have to consider the reasons which exist for a currency, say, the currency of Great Britain. We are told by those who believe in the issue of a note which is made legal tender that it is within the power of a Government - I think that Senator Rae will ratify this statement - with a printing press and paper to make as much money as they like and send it through the country.
– Why does the honorable senator quote me?
– Because of one or two remarks which he interjected a little while ago.
– In that respect the honable senator misrepresents my view.
– Then I withdraw the remark.
– The Government do not intend to go on issuing notes unless there is a demand for them.
– I know quite well that in the community there is , a large section who urge that the Government, as such, can issue as many tokens as they see fit, which become valuable, because they are backed up, as it is termed, by the resources of the Commonwealth. If honorable senators go into the history of the currency question, they will find some very good reasons underlying the system which has hitherto prevailed throughout the British Empire. At present gold is legal tender without limitation. No matter what the amount of a man’s debt may be his creditor cannot refuse to take gold when it is tendered. But as regards silver and copper there is a very great difference, and we find that 40s. is legal tender in silver, and is. is legal tender in copper.
– That has not always been so.
– That has been the practice for many years.
– Since a gold standard was established.
– Why do we have a gold standard? Why were not the bi-metallists successful in their agitation? They wanted to make both gold and silver legal tender, but they were met with this reply, “ No, we do not desire to make the proposed change.” The bi-metallists worked very hard and very energetically. They were only a small party, but they were backed up by very wealthy and influential corporations which were producing a large quan- tity of silver. What appealed to the minds of the people was that, when you got -a gold token, you had not only a token which represented a certain sum, but an article which was intrinsically worth its face value. A sovereign is the equivalent of * oz.* of gold, and if a man chooses to melt down four sovereigns he has £4 worth of gold. You have, therefore, in the gold, the intrinsic value of the article. That is, I think, one of the strongest reasons which we can have for saying that gold coinage should be legal tender.
– It cannot be debased.
– We cannot see how it is going to be debased. To debase the gold coinage we should need, not only an immense increase in the production of gold, but an immense decrease in the cost of its production. There is the gold which we say cannot be debased. As the production of gold has increased so has the consumption of goods increased, if not in a greater, certainly in an equal, ratio. In any case, we have that which intrinsically represents its face value. No matter what troubles Governments or individuals may get into, they have in the gold coinage an article which maintains its face value unaffected by outside events. Originally silver was worth about 5s. an ounce, and to-day it is worth a little over 2s. It has not a fixed standard like gold has. Its value varies according to the demand which arises and the use which is made of it.
– Gold has only a fixed value, because it is made the measure of value. If silver were treated similarly it would have a fixed value, too.
– Silver can be produced to such a great extent, and at such a low price, that if you were to attempt to fix the value at 5s. an ounce, when it could be produced and sold profitably at 2s. 6d. or 2s. 4d., or even less, at times silver mine-owners would make magnificent fortunes; but if you were to take .£1,000 worth of silver coin you would not have £1,000 worth of material; you would have tokens representing £1,000, which ‘intrinsically were worth only about £400 or £500. The same principle applies in regard to copper. There you see one great reason why gold has been retained as the system of exchange and tender, and why the bi-metal lists failed to carry the views which they put forward so enthusiastically and energetically.
– Not that their views were not just.
– I am not raising at present the question of the justness or unjustness of their views, but pointing out how the common sense of the people, when they were bumped right up against the idea, led them to say, “ If we are going to have a large amount of coinage of any particular kind, let us have a coinage which has an intrinsic, and not an artificial, value.” All the shillings which are withdrawn from circulation are sent to the Treasury, and at Home we get the value of it. Senator McGregor may say, “ We will pay you the full value of the Australian notes.” Bear in mind that you are going to exchange a sovereign for a piece of paper and make the latter legal tender. He argues that it will stand in a better position than a bank note. One argument is that the notes will be legal tender. It is urged that a bank note which is legal tender is of more value than a note which is not. But the true strength of the position of the public, in regard to bank notes is that the moment they find the slightest hint that things are not right with a bank that has issued a note they may refuse to take it, and may demand gold or silver. But if a time should unfortunately arrive when the bank notes issued by the Commonwealth Government were depreciated in value, an individual would be bound’ to accept them in payment of a debt at their face value, notwithstanding the depreciation. A working man might be paid his wages in these depreciated notes, and would not then be able 10 get £4 worth of goods for four £1 notes which he presented. Depreciation may arise from many causes. Some may be entirely unjustifiable. On the other hand, it may arise from justifiable causes. An individual accepting Commonwealth notes will be entirely dependent upon the ability of the Government to pay gold for them. A man may be a thousand miles from Melbourne at a time when notes are depreciated. He may find that no one is prepared to give . him cash for his notes, or to supply goods to their value, unless he pays discount. We must bear in, mind that when we introduce legal tender notes the effect will be to a certain extent to drive out gold. It is perfectly true that the Treasurer will hold a certain amount of gold in the Commonwealth coffers. But the very fact that he holds that amount means taking gold out of circulation.
– But do not the banks hold gold in reserve?
.- Of course they do.
– Then that gold is not in circulation.
.- It has been stated that the banks hold enormous reserves of gold. One bank has something like£8,000,000 in gold at present lying at its various branches.
– What is the difference between gold being held in reserve by the Commonwealth and by the banks?
.- When gold is held by the Commonwealth it is absolutely withdrawn from circulation. But when the gold is held by the banks, though it is held for the purpose of meeting the liability on notes, it is nevertheless available for general purposes.
– Does that mean that there is no real gold reserve held by the banks? .
.- Not at all. The banks are prepared to meet their notes at any time, but they know that all the notes issued by them will not come in at any particular moment. They hold sufficient funds to redeem all the notes which may come in. and to meet the demands of their depositors from day to day.
– The honorable senator will admit that 25 per cent, is a very fair margin for the Commonwealth Treasurer to hold.
– I am showing that this proposal means locking up a certain amount of gold currency, and keeping it from public use. On the question of convertibility, no matter what honorable senators may say as to the possibility of converting these notes into gold elsewhere, they will not be legal tender outside of Australia. A person taking Commonwealth notes into England, and desiring to obtain gold for them, will probably have to pay a substantial discount.
– That applies to all notes, does it not?
.- A person who possesses bank notes in a particular country does not, if he can avoid it, take them out of that country. Any one who has travelled in continental countries is aware that no one dreams of taking their paper money into Great Britain. He gets rid of it by converting it into a medium of exchange that will be more easily convertible in England. If, unhappily, he is landed with a certain quantity of the paper money of, say, France or Italy, he must be prepared to pay discount on converting it into the currency of another country. But gold is the universal medium of exchange. You can take it anywhere, and get not merely the face value of it, but in some countries a premium. A person who goes to France or Italy, and takes golden sovereigns with him, will get more than an equivalent of twenty shillings for each sovereign, because people are always eager to get gold in countries where paper money is largely circulated.
– I have known gold to be refused in Western Australia, and an order on Monga to be preferred.
– That might be because it suited a man under particular circumstances to take an order instead of gold. A person going from Australia to another country does not usually carry a mass of gold in bis luggage.
– I mention this instance to show that gold is not always preferred.
– If the honorable senator were going to another part of the world, and taking a thousand pounds with him, it is not at all likely that he would carry gold. He would obtain a letter of credit.
– Is international trade conducted in gold?
– International trade is to a large extent a matter of exchange and barter. Gold is exported from Australia, and as the great bulk of it is used at the other end of the world, we get goods in exchange for it. But, nevertheless, we cannot get away from the fact that gold is the stable monetary standard of the world, and will remain so. I entirely deprecate the idea of manufacturing legal tender out of paper. Moreover, I am at a loss to know what advantage can arise from the proposed system. Who has asked for it? Amongst some people there has been a popular cry, “ Let the Commonwealth issue notes and let them be legal tender.” But what is at the back of the cry ?
– At the back of the cry is the disappointment that has occurred in reference to the bank notes of financial institutions at various times.
– Would the Government think of issuing bank notes if they did not intend to make them legal tender?
– We are going to give preference to our own money.
– I have yet to learn that gold is not our own money. I have dealt with this subject at length in the hope of getting honorable senators to realize the value of a proper gold standard of currency. I have tried to ascertain why we should depart from that standard. It is said that this is not done with the idea of injuring any financial institutions. I accept that statement. But what is the idea? We are all interested in the currency. Every one is dependent more or less upon the value of money which he possesses. We have read of innumerable instances in which paper money has depreciated very materially. One of the great exemplars is the United States, where the depreciation in the value of paper money has at times been such that there was the greatest uncertainty as to the real value of the currency. I recognise that the Government have endeavoured to protect the issue by accepting amendments in the Bill which certainly have effected improvements. The first Bill gave the Commonwealth Treasurer such control over the gold reserve that it might be used for any purpose whatever. The Bill as originally introduced provided that -
The moneys derived from the issue of Australian notes may -
be held by the Treasurer in gold coin; or
be used in the redemption of Australian notes; or
be expended for any purpose that the Parliament directs.
There . was, of course, also a provision for a 25 per cent. gold reserve. That left it in the hands of the Treasurer to use threefourths of the proposed issue of , £7,000,000 for any purpose he might think fit, when authorized by Parliament. In the Bill as we have it, however, clause 8 provides -
Honorable senators are aware, from recent debates in the Senate, that the Treasurer has no power to interfere with any of the moneys of a trust account, except with the authority of Parliament. The clause further provides -
Part of the moneys standing to the credit of the Australian Notes Account shall be held by the Treasurer in gold coin for the purposes of the reserve provided for in section nine of this Act, and the Treasurer may invest the remainder or any part thereof -
The moneys standing to the credit of the Australian Notes Account may be expended -
Then there is a provision that the Treasurer shall hold coin to the extent of onefourth of the proposed issue of £7,000,000, and £1 for £1 beyond an issue of that value. Honorable senators will, therefore, see that the Bill before the Senate is very different from the measure as originally introduced. If this Bill is honestly administered in accordance with the intention of Parliament, it will be impossible for the Treasurer to use the moneys derived from the proposed issue for any but the specific purposes provided for. But how have the Government treated the States in this matter? Honorable senators are aware that the private banks issuing notes from time to time are obliged to pay a tax of 2 per cent, upon the value of their issues. Apart from Queensland, the revenue derived by the States from this tax is roughly estimated at £80,000. That revenue is to be taken away from the State Governments, while the financial position of the Commonwealth will in no way be strengthened.
– Did the Federal Convention insert paragraph xii of section 51 of the Constitution for fun?
– No, I do not suppose they did.
– It was for better security.
– I presume that the contention of the Government is that they propose to take £80,000 of revenue derived by States other than Queensland from the note tax, and £25,000 derived by the Queensland Government from their Treasury note issue, for purposes of better security.
– That was the argument used by the framers of the Constitution in support of the provision giving the Commonwealth control of the currency.
.- Senator McGregor alluded to the Queensland Treasury note issue, and said that, although it had been in existence for a period of seventeen years, none of the evils that were feared and predicted when it was proposed have come about. The. Vice-President of the Executive Council used the fact to justify the issue of convertible notes by the Commonwealth, but it may be used just as legitimately to prove that, so far as the security of the Queensland Treasury note issue is concerned, this proposal is unnecessary. It is true that in the early nineties a serious financial crisis arose, but it was not due to any overissue of notes by private banking institutions, but to the booming of property values.
– To the bursting, and not the booming.
– It was due, in the first instance, to the booming of property values to such an extent that it was impossible that they could return an adequate interest. That booming was followed by the bursting of the bubble, and, though many people experienced serious difficulty and trouble, it was probably a very good thing for Australia that the bubble did burst. We learn by experience, and every financial institution in this country received such a lesson at that time that they have .since taken very good care to avoid being placed in a similar position again. Honorable senators who. know anything of the condition of affairs in 1893 are not in the least surprised to-day at the bursting of the boom; they can only wonder how men should have allowed things to get into such a condition. Though- we have had fairly prosperous times recently, we have had some bad times in the interval since the banking crisis of 1893, but no one has questioned the stability of the note issues of the private banks. It may be said that we can have no assurance that such a state of confidence will continue, and that we may have a repetition of the financial difficulties of that time. The private banks issue notes under the authority of their charters and Acts of the State Parliaments ; but the Government, in this Bill, and in another to come before us shortly, propose to take away their power to issue paper currency. I wish to remind the Senate that it is possible for the Government to protect the public in respect of the notes of private banking institutions by legislation determining the value of their note issues and the security which the banks must hold against them. In order to guard against a financial crisis in the future, it is by no means necessary that we should replace the note issues of private banking institutions by a Government issue of Australian notes. On the question as to how the public will be affected by substituting for private note issues an issue of Australian notes by the Government of the Commonwealth, it is as well that we should remember that, while under the existing system the banks pay a tax of 2 per cent, on the value of the notes they issue, they do not pay the tax until the notes are actually put into circulation.Of course, the private banks, in connexion with their issues, have to pay the expense of providing and printing the notes on specially-prepared paper, and of supplying the clerical work necessary in keeping a record of the notes issued, withdrawn, and destroyed as unfit for further circulation. I am not in a position to say exactly what this expense amounts to, but it is estimated at something like per cent, on the value of the issue. We know that, in the big cities of Australia, the usual practice is for banks to pay go’d for cheques unless notes are asked for, but in country districts people require greater banking facilities, and, instead of stocking their branches with large amounts in gold, the banks use notes as well as gold. A country branch of a bank may have £100,000 in gold and £100,000 in notes, to meet a possible currency demand of ,£200,000. If the bank issues only the £100,000 in notes, it loses interest only on that amount instead of on £200,000; but if, under this Bill, the bank pays £200,000 into the Treasury in order to obtain £200,000 worth of notes, honorable senators will see at once that it must lose interest on the £200,000 instead of on the £100,000. In the circumstances, the banks will have to consider whether it will pay them to- extend their branches as they have hitherto done, and whether it will not be necessary for them to restrict the banking facilities now afforded in the smaller centres of population. I do not suppose that any bank expects a country branch to pay directly it is opened, but we know that banks are not philanthropic institutions, and, though they carry on branches often at a loss, it is with the object of keeping up a valuable connexion, and maintaining their business. My pointis that this proposal may have a tendency to restrict somewhat the banking facilities afforded at present in small centres of population. Under this Bill the Treasurer is made the depository of the whole of the funds to be derived from the proposed note issue. His action is to be regulated by the provisions of the Audit Act by making this money a trust fund. However, we know that at times the integrity of the Trust Funds is not always strictly observed by a needy Treasurer, who may hope that Parliament will condone what he does, and, in so important a matter as the currency of the country, I ask whether it would not be far better that the funds derived from the proposed note issue should be placed in the hands of some absolutely independent person, so that the approval of Parliament would be required for anything proposed to be done with the money. If that course were adopted, and Parliament were asked to approve of action in respect of the funds which was not strictly in accord with the conditions laid down in the law, the people would say that, as a community, they !must keep their good name in the face of the world. We shall probably have occasion later on to issue Treasury-bills and to borrow money, and the better our reputation for integrity, the more favorable the terms we can expect to obtain. I am sorry that the Government have not adopted the suggestion that was made in this direction, as it would have strengthened their proposal. I have already pointed out that, under the Bill as it now stands, the Government can take no action to secure a cheap loan by means of this proposal, because all the revenue derived from it is to be set aside for specific purposes mentioned in the Bill, and the only money to be gained is represented by the interest upon consols, Government debentures, or fixed deposits with the banks. That money is not to be paid into the Consolidated Revenue, but is to be applied to a fund for the redemption of these notes. The Government, therefore, have nothing whatever to gain. No necessity has arisen for the proposed change; and I hold that it is a serious thing to interfere with our currency by creating a new form of legal tender when we already have a form of legal tender which is based upon a gold standard. I am not one of those who predict that any financial crisis will arise as the result of this legislation. I hope that the Government will, at all times, maintain the value of the proposed Australian notes. I recognise that they are not to be absolutely inconvertible. But they will be very difficult of conversion. There is only one place at which they can be converted, namely, at the Seat of Government. To-day the Seat of Government is in Melbourne, but in a few years we hope that it will be in the Federal Capital. If persons resident in Western Australia are able to convert Australian notes only at the Seat of Government, a great hardship will be inflicted upon them.
– That is a detail which can easily be amended.
– I shall be very glad to have the assistance of the honorable senator in amending it in Committee. I repeat that hardship will be inflicted upon persons resident _ in Western Australia if they can convert Australian notes only in Melbourne. Their bankers may or may not give them gold in exchange for them. Of course, it may be urged that this matter can be dealt with by regulation. But I hold that we ought to specify in the Bill the places at which notes can be converted. The VicePresident of the Executive Council may plead that it would be difficult to distribute a 25 per cent, gold reserve over the whole of the States. But there is nothing to prevent the Treasurer from establishing a gold reserve of 55 per cent., so that that objection is merely a fanciful one. It will doubtless be recollected that it was the original intention of the Government to make the banks their agents for the purpose of distributing Australian notes. But they have now very wisely abandoned that provision.
– Does not the honorable senator think that the’ banks will boycott our notes?
.- I do not think so.
– The Australian notes will be equivalent to the paper money which the banks issue at the present time.
– In its original form, the Bill provided that if gold were demanded up to £25 for Australian paper, such demand must be immediately met by the banks. But it was pointed out to the Prime Minister that it would be exceedingly difficult to give effect to that provision, and, accordingly, it has been eliminated. Reference has been made to certain deputations which have waited upon the Government in connexion with this measure. I would like to ask whether those deputations did not make representations of value, and whether the Government ought not, at all times, to welcome information which is likely to prove of service to them ? Financial institutions are naturally interested in the currency question. Are they not, therefore, the very best authorities to advise the Government as to the clauses which ought to be included in this Bill ? No matter how well grounded a man may be in any subject, unless he deals with that subject professionally there are many things which he cannot grasp so well as a man who does. When a deputation waits upon a Minister, surely it does so with a view to making representations to him, and of debating the question at issue with him. That is a perfectly legitimate course to adopt, and one which should be welcomed. I do not intend to occupy the time of the House at any greater length. I feel that it is desirable that every possible view which can be urged against the Bill, as well as for it, should be presented to the country. Only by that means shall we be able to secure legislation which will be advantageous to the community. The VicePresident of the Executive Council has failed to satisfy a large section of the Senate that any real necessity exists for the legislation which is proposed in this Bill. If we were doubtful only as to its legality, our duty would be to say, “ We question its constitutionality, but the Government must accept responsibility for their action.” For my own part, I do not think that any question can be raised as to the power of the Commonwealth to deal with this question in the way that is proposed. But whilst the Commonwealth Parliament is empowered, by the Constitution, to legislate upon many subjects, it has no mandate to legislate upon them at any particular time, lt ought to deal with them when the proper time arrives.
– When will that time arrive ?
– I have already told honorable senators that I am opposed to making Australian notes legal tender, seeing that our present legal tender, based upon a gold standard, satisfies all our requirements.
– Cobbett denounced a paper currency as a device of the devil !
– In most of the States, the notes issued by the banks are a first charge upon the assets of those institutions. Some honorable senators may exclaim, “ But there are the depositors to consider.” That is perfectly true. But we shall not strengthen the position of bank depositors by passing a Bill of this character. We shall only be substituting one form of bank note for another. It is true that we shall substitute the bank note of the Commonwealth Government for the notes issued by a score or thirty institutions.
– .There are twenty -one banks of issue.
– I admit that we shall be establishing only one bank of issue as against twenty-one such banks. But I doubt whether the commensurate gain will compensate for the amount of injury which will be inflicted on the States by depriving them of a fairly remunerative source of revenue. We have also to bear in mind that, whilst we may pass a Bill empowering the Government to issue notes under perfectly safe conditions by establishing a gold reserve to meet those notes, if a financial crisis occurred in this country, it would be open to the Treasurer - and, indeed, it would be a very grave temptation to him - to say, “ We will continue to make these notes legal tender, but we will diminish the amount of our gold reserve. The position of the country to-day is that we have £6,000,000 or £7,000,000 in our gold reserve, and that money would be of immense service to us just now. It would enable us to tide over our difficulties. Therefore, we will divert it from the purpose for which the reserve was originally created, and continue our Australian notes as legal tender.” And this might be done by a Government which had been compelled to have recourse to Trust Funds in order to keep its head above water. In such circumstances, the currency must depreciate most materially. A few men may say, “ We are willing to wait. We will take these notes at an enormous discount, because we believe that the country will ultimately pull itself through.” But the depreciation having set in will affect in the largest degree those least able to face the position, and, instead of being a blessing, it will become a curse to the community at large.
– The Government would have to establish a Commonwealth bank.
– A Government which is not in a position to meet its obligations, but has to resort to Trust Funds, is the agency which the honorable senator suggests will start a State bank.
– All currency should be under the control of the Commonwealth.
– Gold, silver, and copper currency are under the control of the Commonwealth, but paper currency is a different thing. A gold coin is intrinsically worth what it represents. . A silver coin does not represent intrinsically more than one-half of its face value, and it can only be compelled to be taken up to the amount of 40s. A copper coin may be intrinsically worth very much less than its face value, but we are only bound to take is. worth of copper coins. With the gold currency you can always get the face value of a coin, whatever it may be. With a Government in the position of having overrun the constable, as I have described, there will always be a temptation to go to the Trust Funds. I admit that if the Trust Funds were placed in the hands of Commissioners, it would still be in the power of the Parliament to get at them.
– If the Government are not doing right, why did the members of the Federal Convention empower this Parliament to legislate with respect to “currency, coinage, and legal tender”?
– When that power was taken in the Constitution Bill, the whole object of the Convention was to place banking legislation under the control ot the Commonwealth, so that if a bank were established it would have to obey a uniform code of law, wherever it was located.
– It is the next paragraph of section 51 of the Constitution which deals with banking. The paragraph I referred to deals with only “currency, coinage, and legal tender.”
-Colonel Sir ALBERT GOULD. - The two paragraphs read as follows - (xii.) Currency coinage and legal tender; (xiii.) Banking, other than State banking; also State banking extending beyond the limits of the State concerned, the incorporation of banks, and the issue of paper money.
The paragraph with regard to currency was not placed in section 51 for the express purpose of enabling the Government of the Commonwealth to issue paper as currency and legal tender. The Commonwealth Government have taken advantage of the provision to issue silver coinage, because there is such a great difference between the intrinsic value and the face value of silver coinage that a large profit is made, but there is no profit made out of the gold coinage. That is no justification for bringing in a Bill of this kind at the present juncture, though that necessity might arise, as it did in Queensland some years ago. When it was determined by the Government to issue bank notes, the whole of Queensland was regarded as practically insolvent. It was necessary that the Government should come to the assistance of, not simply financial institutions, but the country as a whole. They decided to issue legal tender notes, because nobody would take bank notes, and the banks were not justified in issuing notes, because their resources had been diminished to a great extent. But you can always control that by legislation when things are booming, and make your provision of such a character that the public will be absolutely protected with regard to every bank note which may be paid to them, and received in the full belief that it was worth what it is represented to be.
.- I do not rise to oppose the second reading of the measure. I believe it to be a very important one, but I desire to make only a few remarks, as I am still expected not to speak publicly. I admit that the Parliament has full power to do all that the Government propose in the Bill j I do not dispute that at all. But I would point out that we are now lowering the currency and making things more difficult. Australia has as good a currency as is to be found in any part of the earth. The purse in my hand contains gold, but, after this Bill is passed, it must contain only bank notes.
– .Why, “ must “ ?
– When I am 1,500 miles from the Commonwealth Treasury, how am I to get gold? I am in a good position to make a forecast. It will be in Australia just as it is in Spain, Germany, Italy, and other parts of the world. At the street corners we shall find men standing at a table who .are willing to exchange gold for notes. I have never forgotten the experience I had twenty-five years ago, when I went from London to St. Petersburg. I was a rather innocent young man in those days. I spent a lot of money in Russia, Finland, and other countries.
– I hope the honorable senator had a good time.
– Yes, I had a good time, thank God. In London, I paid gold for a draft on a huge banking institution in St. Petersburg, three or four stories high, in a great street. I went down to the south of Russia, where I spent many weeks in visiting various places - in fact, until the cold drove me away. When I was going down the Neva to visit Stockholm anc! other parts of the world, what did I find? When I went to the banker who took my gold, I was refused gold absolutely. True enough, if I had had Bank of England £5 notes I could have sold them at a premium there. I have travelled round the world twice, and I know that I can get more than value for a Bank of England £5 note in any part of the earth which I have visited. Indeed, it is at a premium in all parts.
– Except Australia.
– In Australia, it is not at a discount.
– The honorable senator will not get more than £5.
– If you go to a man who wants to remit £5 to London, he will be glad to get your note.
– Yes, if you can find him.
– Every day the merchants are remitting money to England.
– What about the Bank of Scotland notes? They are not much good.
– A Bank of England note is a generally accepted piece of paper money which is at a premium almost all over the earth, because it is known to be solid and sound, and because it can be remitted to London in payment of a debt. London is the great receiving house of the world. Go to California, go to Kamtchatka, go to anywhere you like, with Bank of England notes, and you will invariably get more than their face value. The Bank of England note is always at a premium, because of its ready convertability If any person in Australia wants to remit a Bank of England £,$ note to England, it will be taken by any wholesale or retail man. When this Bill is passed, a man may be a thousand miles distant from the Seat of
Government, where, of course, the Treasury will be, and he will be put to the expense of paying exchange on his notes. Is that right? Is that what a Liberal Government ought to do? Is that what a Government ought to do which is supposed to be specially favouring the man who holds a few notes in his pocket? -I speak as a financier who has had some experience in Australia and other parts of the world. The Australian notes will, of course, be accepted as legal tender. If a person wants to buy any articles in a shop, these notes will be accepted. I believe that they will be all right, because Australia is a wealthy country. It cannot be killed by legislation, otherwise it would have been dead long ago. It is making more progress than is any other part of this earth. According to recent statistics, «it heads the world in exports.
– In everything except population. ‘
– Yes, but that will come. Why should the Government bring forward a Bill which, within six months of its enactment, will inflict a loss upon those who have to exchange notes ? Will banks in country districts give gold for notes when they have to send to the Treasury, perhaps, a hundred or a thousand miles distant? No. Honorable senators cannot expect a trading company to put themselves about, and to incur expense, to oblige a customer.
– I always thought that it was good business to oblige customers.
– It is good business to oblige customers who cannot be refused, but there are some customers who may be refused without detriment.
– And all the public are not customers.
– That is true. I have a little faith in Governments sometimes, because I have been in politics for thirty-seven years. I remember the time when some banks broke. I was a bank director at that time, and gave my colleagues some good advice, but they would not take it. The banks lost their heads, many of them trying to rob each other. One of the things which was done would have been a disgrace to any Parliament. The Parliament of Victoria compelled depositors to become shareholders - a disgraceful thing to do.
– They robbed the depositors.
– By making them shareholders, they compelled them to become responsible for losses with which they had had nothing to do.
– No Labour Government would do a thing like that.
– I hope not, though my honorable friend will excuse me for preferring the policy of my own party. I believe that a State Bank was established in South Australia some years ago; but that it has not been free from blame.
– It has been, a great success
– We should leave these dangerous problems for time to un-. ravel. On the whole, government in Australia has been well conducted. The people are wealthy, and the outlook is magnificent. Why interfere with the prospects? There was no necessity to introduce this Bill, and there is no urgency for it.
– Yes; a forced loan was wanted.
– I would not say that ; but if the Government wanted a little money, they could have raised a million by issuing Treasury-bills, which would have been taken up with the utmost readiness. Money is cheaper here than it is anywhere else in the world. The Government are now instituting a currency that cannot be Ai in quality. Formerly we have had sovereigns in circulation ; but now we shall have paper.
– The people have insisted on having sovereigns, because they distrusted the private banks.
– Our banks are now remarkably sound.
– They were considered to be strong in 1890 and 189^
– At all events, they were never stronger than they are now, and they have benefited from experience. As things are conducted in this world, even bankers need to learn by experience. The reason why the English banks have been sounder than the Colonial banks has been because they had good advice from their directors; whereas many of the directors in Australia were “ boomers “ themselves, and led the banks into difficulties and losses.
– We were always fold that they were born financiers.
– Many of the English bankers have been born financiers, having had the advantage of great experience that has been handed down from generation to generation. However, I repeat that our Australian banks are on a strong foundation now, and I hope they will continue to be so.
– In common with most members of the Opposition, I intend to vote for the second reading of this Bill. I recognise that the Government are acting completely within their constitutional rights in bringing it forward. The Vice-President of the Executive Council alluded to me as if I were opposed to the principle of the measure. If he will take the trouble to look into the records of the Bathurst Convention of 1896, he will find that I looked forward to the day when an Australian Government would take complete charge of the currency. I am still of opinion that that is a legitimate thing to do. But, on the other hand, I recognise that the success or failure of the measure will depend upon administration. Senator Gould has pointed out that there is no absolute necessity for making the Commonwealth notes legal tender. No doubt there is power to do so, and the time might come when it might be requisite . for the Government to declare its notes legal tender. But there is no necessity to do so now. All over the world the British sovereign is recognised as a sound medium of exchange. As Senator McGregor said, a good deal of nonsense has been written in the newspapers with regard to the currency. For instance, the Brisbane Worker has written that the Commonwealth note issue will be a means of “ clipping the claws of the financial dodgers.” That was a most absurd remark to make. Another newspaper has tried to frighten the people needlessly by drawing an alarming picture of what the results of this proposal will be. Attention has been drawn to the fact that in 1790 - the revolutionary period of France - assignats were issued which ultimately became almost worthless. I am not disposed to take extreme views on this matter. I believe that a note issue, with an adequate coin reserve, will be acceptable to the Australian community. But the Bill requires to be liberalized in some of its details. Emphasis has been laid upon the success of the Queensland note issue. That issue has been successful, because, amongst other reasons, the notes are fairly convertible. The Queensland notes are not only convertible in Brisbane, but also, I have been told, at Normanton, Cairns, Townsville, and Rockhampton.
– Those places are depots for the issue of clean notes.
– They are places at which notes can be obtained for gold. At Mackay and Townsville also mutilated notes are exchanged for new ones. That is a great convenience. The Australian banks have a great many branches at which they store unsigned notes. If the Government insists upon £1 being paid in gold for every £1 note issued, and the notes can only be converted at one place in the Commonwealth, it is evident that the public convenience will not be accommodated to so great an extent as is at present the case. I have had a great deal of experience in branch banks. I am old enough to remember when the Bank of New South Wales first issued notes bearing upon them the name of Rockhampton. We, at the branch, were very proud of them when they were issued for the first time. The meaning of this was that the notes could be cashed for gold at Rockhampton. The bank adopted the same policy with regard to other branches. I gladly recognise that the Bill is more satisfactory to the public now than it was when originally introduced. I gladly acknowledge that the Prime Minister has shown himself willing to accept suggestions. He did not oppose a suggestion made by Mr. Groom that there should be a Board of Commissioners appointed for the issue of the notes. I also have drafted a few amendments, which I shall submit in Committee. One of them would make the Commissioners a corporation. I also suggest that the coin reserve should be one-third, instead of one-fourth, and that the notes should be redeemable at the capital of each State, as well as at other places, by proclamation. I also recommend that depôts, such as there are in Queensland, be established in various parts of Australia. The day may come when the Commonwealth will have its Seat of Government elsewhere than at Melbourne. It may be at Canberra, at Dalgety, or somewhere else. Then our Victorian friends will sympathize with those of us who maintain that one State should not have an advantage over the other States with reference to obtaining gold for notes.
– What facilities does the holder of a note at Broken Hill enjoy now? His note is payable in Sydney.
– Sydney is, probably, the capital of the State in which the branch bank is conducted. If my idea were carried out, such a note would be able to be cashed at Adelaide.
Sitting suspended from1 to 2.15 p.m.
– It is quite unnecessary that I should travel from Dan to Beersheba to explain the practice of banking all over the world. I believe the Government have studied this question from every point of view, and I credit them with the introduction of a Bill which, in their opinion, will be for the benefit of the community. I shall not upbraid them with what happened in days gone by in other countries in connexion with the issue of inconvertible notes, because it would not be fair to compare the effects of an inconvertible note issue with those likely to follow from an issue of convertible notes. The Queensland Treasury Notes Act has apparently been a source of encouragement to the Prime Minister in bringing forward this Bill, but I would point out that under that Act the banks are permitted to pay for Queensland Treasury notes one-third in coin, with fixed deposits for two years for the balance. Some of the Queensland banks have availed themselves of that provision, but, so far as I can understand, it is not the intention of the Government to include such a provision in this Bill. We cannot, therefore, regard the success of the Queensland Treasury note issue as a guarantee that the issue proposed by this Bill will be equally successful or popular. My own impression is that the issue in the larger cities will be comparatively small, though it may be much more extensive in country districts, particularly in the case of the proposed 10s. note. Very few persons engaged in business in the larger cities to-day make use of notes. They usually settle all their transactions by cheques, and where that is not done, I think they would prefer half-sovereigns to 10s. notes, because there is always danger in a variety in the denominations of notes. 1 have already said that there are only four matters in connexion with which I shall probably ask honorable senators to consider some amendments of tins Bill when we get into Committee. On one point I should like to say that if the Government will not accept any amendments, they need not be surprised if at some future date, when they . are no longer in possession of the Treasury benches, an effort will be made to substitute Commissioners for the Treasurer in the control of the proposed note issue. My own view is that the Treasurer should be the
Chairman of a Board of three Commissioners, the other two being non-political members. It has been suggested that the Auditor- General might be one of the Commissioners, and I think he would be a very good person to appoint to such a position. It is almost too much to impose upon the Treasurer all the responsibility for the note issue. I understand that a corporation of one is not unknown in the churches. Senator Gould has informed me that there is such a thing as a corporation of “the Bishop sole,” the Bishop for the time being representing the church to whom property vested in “ the Bishop sole “ belongs.
– What is the objection to the Treasurer as proposed by this Bill ?
– I think that the Treasurer has already so many other duties to attend to that he would be inclined to leave the management of the fund under this Bill in the hands of subordinates. If we had a Board of three Commissioners, they could meet once a week, and, having all the papers bearing upon the issue before them, they could decide whether, from time to time, it would be advisable to strengthen the gold reserve.
– Where would be the danger of leaving the management of the fund to subordinates?
– I think that the control of the note issue should really be committed to a separate special Department. The honorable senator should not forget that this is a very big matter, and it is hoped that, after a certain time, we shall have an issue of Australian notes to the amount of ,£7,000,000.
– I should like to know the honorable senator’s reason for preferring Commissioners to the Treasurer.
– I think that in some matters it would be better to have the advice of three than the counsel of one. I admit that an intelligent despotism might have very beneficial results, and that if we could secure the succession of intelligent despots it might be a very good form of government.
– The honorable senator is prepared to trust the Treasurer with £16,000,000 of money derived from other sources.
– It is true that the Treasurer might negotiate a loan for £16,000,000, but in connexion with the proposed note issue, he will have to consider a number of details ; for instance, with respect to the number of notes of varying denominations which it would be well to issue. The conduct of the note issue will be really a business. Many private banking institutions have what is known as a bank notes department.
– Which a clerk supervises.
– No; a much more responsible officer than a mere clerk is required to manage a bank note department.
– Is not a clerk a responsible officer?
– A clerk may be a very good man in his way, but he could not be considered a responsible officer in the same way that the head of an important department would be. The duties of clerks are very often largely mechanical.
– They are very often much too responsible for the remuneration received by those who perform them.
- Senator Needham will, no doubt, admit that I have had a larger practical experience of a bank note issue than most persons. I say that it is very desirable that we should have a complete Department to keep the note’ circulation in proper form, because it is more difficult than many persons imagine to put it in order if for any reason it gets out of order. Honorable senators should remember that there are great risks in remitting notes through the post. At the present time, because of this risk, many branch banks hold unsigned notes, which, of course, must be signed before they are issued. Under this scheme the branch banks will have to be supplied with Australian notes, and risk will be involved in transmitting these signed notes. As a result, I believe the banks will not be found as ready as they are now to open branch establishment. I know of a bank that has 270 branches, and it will be no easy task to keep all those branches supplied with the proposed Australian notes. With regard to the place at which the notes are to be convertible, the Bill provides that gold may be demanded for them only in Melbourne, the present Seat of Government. I think that gold should be obtainable for these notes at least in all the capital cities of the Commonwealth. The Government should remember that the greater the number of places provided for the conversion of these notes, the less will be the demand for their conversion. When people know that they can readily convert the notes into gold, they will not bother to ask gold for them. But if Melbourne is to be the only place at which gold can be obtained for these notes, the tendency will be to discount their value in some places.
– There are only two places in the United States for the redemption of greenbacks.
– No doubt the honorable senator refers to Washington and San Francisco; but he must be aware that in America the different States have established State banks, in which, no doubt, a certain amount of gold is kept. The United States system of currency is, of course, unique. I must be allowed to say, again, that it is scarcely reasonable that the people in five of the States should be placed at a disadvantage as compared with the people in Victoria in being unable readily to exchange these notes for gold.
– It is one Commonwealth.
– That is quite true, just as we have one Empire ; but there are more places than one in the Empire at which it is possible to exchange notes for gold. I feel sure that the people of Queensland, who have been able hitherto to obtain gold in Brisbane in exchange for Queensland Treasury notes, will consider it a disadvantage if they are obliged to come to the Treasury in Melbourne if they wish to exchange Australian notes for gold. I regard this as a very important matter, but I may deal with it at greater length in Committee. Although Melbourne is at present the Seat of Government of the Commonwealth, it is likely that it will not be the Seat of Government in a few years’ time, and then, perhaps, residents of Melbourne will be a little surprised if they are asked to go to the Seat of Government to get gold for Australian notes. They will then be in a better position to recognise the wisdom of the suggestion that more places than one should be provided at which’ gold may be obtained for these notes. Gold, as we know, is a medium of exchange. Great Britain has sent gold in large quantities to the United States in payment for cereals, and Australia, owing money to Great Britain, has, when requested, sent gold to San Francisco, debiting the London creditor with the amount. It must be remembered that even legal tender notes are not a medium of exchange in the way that gold is. I interjected, during Senator McGregor’s speech, that I have known a charge of 10 per cent, to be made by way of exchange on Australian bank notes in London. I have refreshed my memory since, and I find that a charge of 15 per cent., or 3s. for every £1 note was collected by exchange brokers in London on Australian notes. They used afterwards to bring them to the Australian banks in London, where they were charged an exchange of 5 per cent, upon them, so that the brokers pocketed a profit of 10 per cent. I was a junior clerk in an Australian bank in London at the time, and I may tell honorable senators that in transmitting notes the practice was to send only half of a note at one time. These half notes were cashed on giving the bank a guarantee that if the other half of the note did not turn up the amount paid would be made good. No one in those days would take the risk of sending a whole note by post. It is not a convenient way of transmitting money.
– The voyage between Australia and England occupied about four months then.
– That is so. Of course, it does not take nearly so long now. Some persons seem inclined to believe that the proposed issue of 10s. notes will interfere with the postal note system, and on that account a certain amount of postal revenue will be lost. I do not know that that will be the case, but I think I am right in saying that if the postal authorities suspect that notes are inclosed in a letter, they have a right to register it, and a person sending a 10s. note -through the post may find that, in addition to the postage, 2d. will be charged for registration of the letter. In speaking on the Address-in-Reply I mentioned that I thought it possible that exchange would be charged on these notes. Since then, Senator Guthrie has been telling me that at the time of the banking crisis residents of Broken Hill had !o send notes to Sydney to obtain gold for them. Of course, if the banks are obliged to use Australian notes under this Bill, residents of Broken Hill will be able to get gold for them in Adelaide, which is very much nearer to them than Sydney.
– What I said was that exchange had to be paid in Adelaide upon notes issued at Broken Hill. Under this proposal, no exchange will have to be paid on notes.
– I have said that residents of Broken Hill, if my suggestion is accepted, will be able to get gold for these Government notes in Adelaide. But what will happen in Western Australia, where they have a mint ? Let me say that I think that these notes should be convertible at least at every place where there is a mint, because the Government can always obtain gold at those places. If p. man holding these notes called at a bank in Perth to buy a draft on London, the bank would be within its right in charging exchange on Melbourne before supplying him with a draft.
– He could get gold from the High Commissioner in London.
– The honorable senator seems to be under the impression that the High Commissioner will be flush of money; but the High Commissioner is not a banker.
– We can have a branch in ‘London.
– I bow to Senator Guthrie’s superior knowledge of navigation, but I think he might pay me the compliment of admitting that I know a little more about banking exchange than he does. I have no hesitation whatever in saying that, although the Australian notes will be legal tender, a bank will not be obliged to issue a draft for them. They are to be legal tender only for the payment of debts, and not for the purchase of goods.
– One need not sell for gold unless he pleases.
– That is so, but a. case of the kind is not likely to arise. I do not know whether honorable senators have quite understood what I have said with regard to the difficulty of providing till-money for banks in country districts. It would be a great drawback to country districts if it were found advisable to close the country branches of some of the banks. Many of them are, under existing conditions, maintained at a loss for a year or two, in order to keep up the communication of the banks with different parts of a State. It is often difficult to make them pay under existing conditions, when till-money costs scarcely anything.
– The same thing occurs in connexion with the boot business, as well as in connexion with the business of a bank.
– In bringing my remarks to a close, I appeal to honorable senators to remember that the Senate is the House which is expected to stand up for the rights of the States’ as States, and, as a New South Wales representative, I object to being compelled to come to Melbourne to convert Australian notes, when we have a mint of our own in Sydney. If noteholders cannot convert notes in every State capital, they certainly ought to be able to convert them in Perth, where there is a mint ; in Melbourne, where there is a mint ; and in Sydney, where there is a mint. Further, the Bill should empower the GovernorGeneral in Council to declare other places at which these notes may be converted.
– Are the mints mentioned by the honorable senator our own?
– I said that there were mints in Perth, Melbourne, and Sydney.
– Are they not practically our own?.
– I trust that the Vice-President of the Executive Council will understand that my remarks are prompted by a desire to improve the Bill. I do not object to the principle underlying it, and I recognise that the Government have acted quite within their constitutional rights. I think I have already said everything that was left unsaid by Senator Gould with whom, needless to say, I have been in communication upon this matter. I shall not oppose the second reading of the measure.
– I shall begin my criticism of the principles of this Bill with a word of commendation for it. The measure itself shows that the Government fully recognise that a paper note issue is a thing which is not to be played with. It is very much like fire, in that whilst it may be made a good servant, it may easily be converted into a bad master. The Bill bears upon its face the unmistakable impress of that great financial fact, and the Treasurer is to be complimented upon having administered in clause 9 two warnings which are well deserved, in view of the criticisms and the expressions of opinion which have fallen from the lips of his own followers both in another place and on the public platform. The Bill authorises the Treasurer to issue £7,000,000 worth of paper money, but he has very wisely declared that for every note issued in excess of that amount its equivalent in gold must be held by the Treasury. Seeing that he has provided for a 25 per cent, gold reserve upon a note issue up to £7,000,000, that he has also provided for the issue of Treasury-bills at 4 per cent., as an additional security for the redemption of the notes, and that any issue in excess of £7,000,000 must be supported by its equivalent in gold, I say - not that he has rendered a service to the country because I shall endeavour to show that this Bill is not required - but that he has rendered a very valuable service to his own party, many members of whom have been advocating the adoption of paper schemes which the experience of centuries has shown to be a very dangerous form of wild-cat finance in the hands of the State.
– Why, every scheme has been floated by means of paper.
– To a very large extent that statement is true. But the injuries which have been inflicted under all the schemes launched by private individuals which were based upon speculative or paper money, are infinitesimal compared with the misery and insolvencies which have been brought about as the result of the wholesale repudiation of State paper money. I feel a certain amount of satisfaction in being able to compliment the Treasurer upon the remarkable wariness which he has displayed in connexion with the proposed issue of Australian notes. One great objection to the Bill - an objection which has been urged at length by financial journals - is that a gold reserve of 25 per cent, is not an adequate one. The reply of my honorable friends opposite is that the experience of Queensland from 1893 shows that its gold, reserve has never been drawn upon to the extent of more than 12 per cent. That circumstance, however, is not relied upon by the Treasurer, otherwise he would have fixed the gold reserve at that limit. It is scarcely necessary for me to point out that it is only in times of panic that the value of a gold reserve becomes tested. Consequently, it is necessary to fix that reserve at a considerably higher amount than that to which it is drawn upon in time of financial peace.
– Is a gold reserve drawn upon to any considerable extent except in time of panic?
– My reply is that in time of panic there is scarcely sufficient gold in many countries of the world to satisfy the demands of those who hold paper money or securities. Since the adoption of a State note issue in Queensland, that State has had the singular good fortune to enjoy remarkably prosperous conditions. As a matter of fact, some of the Queensland banks, which, during the financial crisis of the early nineties, held in gold, bullion, or easily convertible assets, more than 25 per cent, of their liabilities, had to close their doors. We all recognise that every current depositor must accept ordinary business risks when he invests his money. Money deposited in banks, whether it be upon current or fixed deposit, is just as safe as if it were kept under the private lock and key of the depositor.
– If in time of financial panic the current depositors got in first, how much gold would be left in the banks for the redemption of their notes? There would.be none.
– Since the notes issued by banks in Australia are a first charge upon their assets, I should say that every bank in the Commonwealth could meet its current accounts, its depositors’ accounts, and redeem its notes as well.
– They could not.
– I hope that honorable senators will prove their contention. I have taken the trouble to study the carefully-prepared table which was presented by the Treasurer to the members of another place, and which sets out the strength of the position of the banks in Australia.
The statistics of Canada, England, and the United States show that Australian bank notes, although they may not be absolutely secure, have the strongest gold backing of any paper in the world. At any rate, that is my opinion. In time of panic, I maintain that a gold reserve of 25 per cent, will be entirely inadequate. The history of the United States’ currency serves to show that the banks there were always uneasy because their gold reserve against the paper money issued by them amounted to less than 33J per cent. In 1875 Congress passed a law to resume payments in specie and to redeem in gold, and retire the United States’ greenbacks. The first portion of that law provided that the Treasurer was to redeem in gold all the outstanding greenbacks in excess of $300,000,000. He was allowed five years within which to redeem and cancel them. When that excess had been redeemed, further provision was made by which he was empowered to cancel and redeem the greenbacks issued to the value of less than $300,000,000, He was therefore authorized to issue bonds in order to obtain the gold with which to begin the work of redemption and cancellation. For that purpose a gold reserve fund of $92,000,006 was at once built up, and an additional amount of $41,000,000 in gold was added to it out of surplus revenue. Thus, it was not until the Treasurer of the United States had $131,000,000 of gold in the Treasury that the intention of the
Act to redeem and cancel the greenbacks could be begun successfully. On 31st May, 1878, the year preceding that in which the redemption of all the notes below $300,000,000 was commenced, there was outstanding $346,681,016 worth of notes, and against that they had a reserve of close upon $130,000,000. That is, the Treasurer, in order to redeem Treasury notes and keep the currency sound, must have a reserve of about one-third of the outstanding liabilities of the paper currency. On the 31st May, 1878, there was an alteration made that the paper currency outstanding not in excess of the $300,000,000 issue might be allowed to stand, and consequently a wholesale redemption of paper money was stopped for a while. But even then, when there was only $346,000,000 worth of notes out, the gold reserve, whether they were to redeem the notes or not, stood at about one-third of the paper currency. From 1879 up to 1883 or 1884 various attempts were made to make both paper and silver do the duty of gold.
– I think, sir, that we ought to have a quorum. [Quorum formed.]
– The Treasurer of the United States was forced to buy silver, and to issue paper certificates cr paper money against that silver. The consequence was that gold at once was hurried or went out of the United States so long as silver or paper was to do the work of gold. And repeatedly between 1882’ and 1893 the Treasurer, in order to keep faith with the paper money issued, had to hawk his bonds about. He had to go to England in order to fortify the reserve, and all the time, notwithstanding the greatest efforts to make even silver supplement the work of gold, he had to keep it up, and had great difficulty in keeping.it up to a limit of about 33J per cent. That is the story of the great battle between those who urged the necessity of keeping a gol3 reserve at about that amount and those who held that paper or silver might be sufficient for the currency. In 1892, when the silver came into the Treasury and the paper note was issued against it, and when the holders, on paying silver into the Treasury, argued that their subsequent paper should be redeemed in gold, and said they would take no more silver, the gold reserve dangerously fell to about $40,000,000 cr $50,000,000. A Presidential address of Grover Cleveland shows what a peril the United States was in at that time through this hugger-muggering with the paper and silver currency. He has left it on record ! that, through the inflated currency, through the improper means taken to support it, at several times the great Republic was on the verge of financial insolvency or the repudiation of its just obligations in gold. But he succeeded in winning a position and made it firm. No longer do we hear in America of any faith being placed on a. paper currency, and little, or no, faith on a silver currency, where silver is expected to do the work of gold. If in the case of the United States they were so anxious in regard to the gold reserve, surely we, on this side, are right in pointing out the danger which might happen to the whole of this community from having an insufficient reserve. If the Government do not want the gold for some purpose of their own, what objection is there to raising the reserve from 25 to 33^ per cent?
– Why should we have the gold idle when it might be earning interest ?
– If there is a run on the Treasury and the Treasurer is not able to meet at once his obligation’: in gold, widespread anxiety at once sets in. If; as we are told so often from the other side, this is only a mere convenience to the public for the purpose of establishing a paper currency, and to obtain the use of a certain amount of gold, what objection can there be, or ought there to be, to increase the reserve to such a strength as will make it practically im pregnable? The answer must be that the Government want to use the gold above 25 per cent. For what purpose?
– Did not Senator Gould say that it would be a waste if it were locked up in the way which the honorable senator suggests?
– If the Government have £7,000,000 worth of paper in circulation, and a gold reserve of only 25 per cent., then in a time of panic the value of having a sufficient gold reserve will be demonstrated. If the Government do not want the gold for some purpose of their own, and are merely giving a convenience, and probably some form of currency, why do they resist the locking up of the difference between 25 and 33 J per cent. ?
– The honorable senator would not mind having a roll of the notes.
– I suppose that there is not one honorable senator who would object to that. 1 am afraid that many followers of the Government are indirectly leading people to believe that once the Commonwealth begins to issue paper notes, there may be a possibility of their having free access to this equivalent of money. I dare say it is in the minds of some honorable senators, and I am afraid that it is in the minds of some people, that, if this experiment is carried out successfully to the tune of £7,000,000, it will be very easy to issue notes to the value of £17,000,000, or possibly £70,000,000.
– Hear, hear; that is exactly what we want.
– I am glad to hear that “ Hear hear,” and to repeat that the Treasurer put a very needed damper on that kind of enthusiasm. The success of this experiment elsewhere has been repeatedly pointed out, both in another place and outside, as a reason why a measure of this kind should be enacted. It has been pointed out that it is also a. guarantee that the paper currency of the Commonwealth will be equally sound.
– If the honorable senator could see his way .clear to join the caucus he would get his share.
– I am afraid that if I got into the caucus on the matter of Treasury notes there would be a burst up, in which either I or some honorable senators would be out.
– There would be an exodus straight away.
– Yes, and probably when the caucus was split up on financial opinions, I might be found sidebyside with the Treasurer, when some honorable senators were going out of the door. There is a clear indication that, very probably, we should be found to be brothers for a long way on the financial road.
I shall now give briefly the history of the introduction of paper, currency into Queensland in 1893. In order that the financial condition of the State may be thoroughly understood, and the emergency which called for the introduction of a paper currency, I shall read an extract from the speech of the Colonial Treasurer, Sir Hugh Nelson. Four Bills were brought in, namely, a Bill to amend the Stamp Act, a Bill to authorize the issue of Treasury notes, a Bill dealing with Treasury-bills, and a Bill to enable advances of Treasury notes to be made to banks. On one measure Sir Hugh Nelson explained the whole object of the legislation. Addressing the Legislative Assembly 011 31st May, 1893, he said -
The ordinary circulation for the Colony for some time back has been somewhere between £500,000 and ,£600,000, and we do not propose to issue more than that to start with…..
I have taken out the figures for the purpose of showing how the note circulation stands at the present time. Of the circulation of £500,000 or £600,000, the greater part of which is for the present dead, the amount which belongs to the banks now open and going is only £134,000, whereas the notes belonging to the banks that have had to suspend payment amount to no less than £414,000. It is easy, therefore, Vo see the tremendous inconvenience that the public are put to, and the necessity of our taking some such action .as we propose to do by these Bills. . . . It is no use our attempting to force more notes into circulation than the public can absorb. Any attempt to do so will simply have the effect of depreciating the value of the paper currency.
– Did any one say that that was not a fact?
– I do not think so.
– We all agree with that.
– Let me see whether honorable senators on the other side will agree with something else which Sir Hugh Nelson said on that occasion. The quotation continues -
That has always proved disastrous to any country where it has been attempted, and is one of the worst things any Government could do.
I ask honorable senators to consider what may happen in Australia. at a time of panic. How many times in the world’s history has a State refused to meet its obligations in gold? Thousands of times. To those who place implicit faith in a paper currency based on the credit of the Government, I wish to point out that, great as the losses have been in the case of private banks, they have been infinitesimal, compared with the losses accompanied by ruin and bankruptcy which have resulted from the use of paper money issued on the credit of the State.
– The honorable senator would have to state the attendant circumstances in the case of the depreciation of the State currency, in order to show why the depreciation occurred.
– The attendant circumstances were that sometimes statesmen, and sometimes public opinion, were deluded with the idea that a Government could issue any quantity of paper without danger. It is true that in prosperous times a strong nation might issue paper without injuring its credit. But a paper currency cannot be tested by what may happen in times of prosperity. As with the strength of a chain, so the strength of a currency lies in its power of resisting strain.
– It will be impossible to have a reserve of gold sufficient to pay all the debts of the banks in time of panic.
– I do not think that it would be possible to have sufficient gold in a bank to satisfy the public in time of panic. It would be foolish to try. Over and over again, when a rush has taken place, Legislatures have had to step in and enable the banks to resist the onslaught of panic-stricken creditors.
– Does not the honorable senator’s criticism apply to inconvertible, and not to convertible, notes?
– My criticism applies to notes of all kinds. As Senator Lynch - who is well informed with regard to American affairs - is well aware, in the United States for years attempts were made to cope with the paper currency. Successive Presidents had severe fights in regard to the matter. The question has been settled there, and in every other country in the world, where experience has shown that gold, and gold alone, must be the basis of any currency, whether silver or paper.
– That brings in the bimetallic question.
– Bi-metallism has few defenders nowadays. At one time Mr. A. J. Balfour, the Leader of tlie Conservative party in the House of Commons, was struck with. the bi-metallic idea, but he does not talk much about it now. In the speech from which I have already quoted, Sir Hugh Nelson went on to say -
As I said before, every man who is in possession of a bank note has hitherto had the right to expect that note would be convertible into gold on presentation, but owing to the extraordinary monetary disturbances that have taken place, nearly four-fifths of the note circulation is stagnant. It can neither circulate nor yet be paid at the place where it is issued in consequence of eight banks out of eleven having recently suspended payment.
He then went on to explain how the paper currency was going to work, and concluded with these words, which I commend to honorable senators opposite -
I believe the best policy just now is to do everything that can be done to help every one of the banks now under suspension to reconstruct and get to business again wilh as mud despatch as possible. That, so far as we. are concerned, we propose to do. As far as I know, the banks are all solvent, and have only got into difficulties on account of a mad rush of depositors who got into a state of panic. Whatever can be done for them, therefore, should be done, and, I may add, that I believe this proposal will be a great assistance to these banks on their reconstruction schemes.
It must be evident, from that speech, that the paper currency of Queensland was initiated first for the purpose of providing a convenient medium of circulation of which the public had been deprived by reason of the suspension of payment by the banks j secondly, to enable the banks to reconstruct; and, thirdly, because the Queensland Government itself at that time required a forced loan. They had a large quantity of gold deposited with the banks, and. needed money in order to carry out their obligation.
– The Queensland National Bank to-day indorses the principle of this Bill.
– I am not saying that, the principle of the Bill is unsound. I have already complimented the Treasurer on some conservative provisions in it. But it must be remembered that the Treasurer takes authority to issue 4 per cent, bills, which are the most profitable kind of securities that the State could have. The banks hail this proposal with a certain amount of satisfaction, because if the gold reserve becomes depleted below 25 per cent., the Commonwealth Treasurer will have to go to them to keep up his reserve, and the banks know that 4 per cent, bills will mean excellent business for them.
– Was that done in Queensland ?
– I think Treasurybills were issued there.
– No, never !
– At all events, Sir Hugh Nelson said that £625,000 worth of bills was to be issued. The Treasurer may not require to issue them in good times, because he may have a sufficiency of gold. It is possible that in Queensland the Treasurer had not to hawk his bills about the market.
– Have there not been bad times in Queensland ?
– Not since 1893, except those that were due to the drought. But can Senator McGregor assure us that, in the next twenty years, there will be no such thing as a financial panic in Australia?
– If I did assure the honorable senator, he would not take my word.
– If I did take the honorable senator’s word in this matter, I am quite sure that he would go to any length in his assertions. The Queensland note issue was resolved upon to meet a special emergency. No such conditions exist in the Commonwealth now ; nor is there a sign of such conditions on the horizon. It would be wiser policy to hold our powers in this respect in reserve, to be used in an emergency, rather than trench upon them at a time when the credit . of Australia stands high in the world.
– The honorable senator suggests that we should leave well alone ?
– Certainly. The best of all- maxims, both for political and private conduct, is “ Always leave well alone.” When things are going well, we should concentrate, and not call upon reserve powers, which should be used when things are not going so well.
There is another feature of this Bill which I view with a certain amount of satisfaction, mingled with a little dissatisfaction. The money received from the Treasury notes may be applied to such purposes as Parliament may direct, or invested in State securities. The section of the Queensland Act on that point is stronger in respect to the application of the money. Investment in State securities meets with my strong approval. I have on a former occasion pointed out that if we are really in earnest about the conversion of the State debts, the Commonwealth Treasurer should have at his disposal means whereby he may be able to redeem State loans as they fall due. This may be the beginning of a scheme for the gradual conversion of the State debts. If that be so, it may be a proper way to begin. But, at the same time, I doubt whether it isright to touch only the fringe of the question in this manner. As for the two purposes mentioned in the clause, I should like to strike out the former, and restrict- the Treasurer to the use of the gold for investment in State securities. By that means only can we begin the policy of converting the State debts. I have now said sufficient to draw particular attention to the dangers connected with the issue of paper money. I have taken the trouble to collect quotations from some of the highest authorities in the world on this subject. 1 shall not read them; but I may state why I collected them. Many followers of the Government seem to labour under grave and dangerous delusions with regard to a paper currency.
– What does a gold currency cost?
– The cost of gold, neither more nor less.
– Will the honorable senator put it in terms of a day’s work? For instance, how many men are required to produce £1,000 worth of gold?
– The honorable senator is asking a question upon which whole libraries have been written, by persons who have given careful study to the subject, and he expects me to give him a complete answer offhand. I say that the cost of a gold currency is exactly the value of the gold itself. I may mention that in the history of the world for the last 200 or 300 years every ounce of gold taken out of the earth has represented just about the value of the labour required to obtain it. It is because gold preserves, for some reasons which financiers have not yet been able satisfactorily to explain, a uniform value that it is so much appreciated as currency. There is no other metal or substance which preserves so uniform a relation between its intrinsic value, which is determined by the demand for it, and the amount of labour and skill expended in its production.
– There is a stamp on gold.
– The stamp value of gold is within an infinitesmal fraction of its intrinsic value. It is because during the last 200 or 300 years people have everywhere recognised that gold is always worth its face value that a gold currency has been so much favoured.
– If we demonetized gold, would it be worth £4 an ounce?
– Certainly not. It has been the attempts made by despots and the enthusiasts in support of paper and other forms of currency to demonetize gold that have caused financial panic and revolution. This is why, in these days, the transactions of States as well as of private individuals are confined as nearly as possible to gold. I do not charge this Bill with being a serious departure from that sound financial principle, but I have thought it necessary to make these remarks at some length, because it has been evident from expressions in another place that representatives of the people, and some of the people themselves, think that by means of a paper currency and State banks of issue based upon the credit of the country, it is possible to dabble safely in millions and millions sterling of paper money. I dare say that all the warnings taken from history, and represented here, -would never convince those persons that they* are deluded. During the last 200 or 300 years there have been many persons who have not been convinced of the delusion, notwithstanding the evidences of wholesale ruin and disaster which have followed departures from the sound principle to which I have referred.
– Gold is the accepted currency of the- whole world.
– It is accepted everywhere.
– How much gold is used as currency?
– I cannot answer that question, but I think I have done something to show the dangers of a paper currency and the weakness of the gold reserve proposed for that provided for in this Bill. Some of the general provisions of the Bill are good, but, as I cannot wipe it out altogether, I have thought it well to make this little contribution to the debate.
Debate (on motion, by Senator Needham) adjourned.
page 2497
Senator PEARCE laid upon the table the following papers -
Census and Statistics Act 1905 -
Population and Vital Statistics of the Commonwealth for the quarter ended 31st March,1910. - Bulletin No. 21.
Trade, Shipping, Oversea Migration, and Finance of the Commonwealth of Australia for the months of -
May, . 1910. - Bulletin No. 41.
June, 1910. - Bulletin No. 42.
Meteorology Act 1906. - Provisional Regula tions 1-3 relating to the sale of Meteorological Publications. - Statutory Rules 1910, No. 79-
Senate adjourned at 3.25 p.m.
Cite as: Australia, Senate, Debates, 2 September 1910, viewed 22 October 2017, <http://historichansard.net/senate/1910/19100902_senate_4_56/>.