Chapter 14 - Public Bank Example in Australia 1911

Commonwealth Bank 1911 as a 'Peoples Bank'
King O'Malley made Australia prosperous with minimal debt.

King O'Malley knew the tricks of banking. As a young man, he had worked in his uncle's bank in America. Banking fascinated him throughout his life. He had been active in the campaign of U.S. President James Garfield. He brought his knowledge and ideas about nation building to Australia. He wished to use a national people's bank to fund public infrastructure projects. He was instrumental in setting up the Commonwealth Bank that funded many public projects, including the Trans Australia Railway, until The Commonwealth Bank was taken over by private bankers around 1924. The major advantage to the nation was that the minor interest payable was remitted to the government so no crushing debt obligations were created that required extensive tax obligations from the people. The next advantage was that there was plentiful work available in the nation. And lastly, at effectively no cost to the people, the nation had major improvements such as the Trans Australia Railway. The advantage of a public bank is that unpayable debts do not occur and any debt is an obligation of the government to the government and so is effectively irrelevant. Usury does not occur because unpayable debts do not occur. Hopefully, after reading these chapters, you would not be surprised that 'The Great Depression' followed the takeover of The Commonwealth Bank.

King O'Malley: Federal Parliament 1909

"The private banking system of the Commonwealth is only a legalized monopoly for the gathering of wealth from the many, and its concentration in the hands of the privileged few... We are legislating for the countless multitudes of future generations. We are in favour of protecting, not only the manufacturer, but also the man who works for him. We wish to protect the oppressed and downtrodden of the earth." [140]

King O'Malley: Melbourne Town Hall 1943

"Previous to taking office in the Fisher Government, I had long seen the weakness of the existing financial system, wherein money and the issue of credit were in the hands of private interests, manipulated for their own profit and not for the welfare of the community. I saw that the Parliament of the Commonwealth, although backed, by the great natural resources of this immense and rich continent, was not free to use the credit of the nation for the establishment and development of national under-takings. It was obliged to go as a mendicant to private banking institutions to obtain finance at a high rate of interest, to necessary to the well-being and progress of the community.

Conscious of this frustration of the people's sovereign rights, because credit issued for public purposes became available. Only as a debt to private banking institutions, we set about the task of establishing a people's bank.

Our proposals met with studied opposition and hostility from all the forces of private financial interests, and of those in possession of privilege and power; but by dint of strenuous campaigning, the loyalty of my supporters, and ceaseless battles over a period of ten years and five months, our labours were eventually crowned with success. As a result the institution now known as the Commonwealth Bank of Australia, the first of its kind in the world, came into being in the year 1911.

As originally constituted under the Governorship of Sir Denison Miller, the Commonwealth Bank rendered a very important service to the public in financing the last war for 350 millions, saving the people ton (ten) millions in interest. It averted a depression in the years 1920-22 which operated disastrously in other countries of the world. Six months after the Bank opened its doors to the public, it returned in full the original capital of twenty thousand on which it started, and which it should be noted, was advanced by the Commonwealth Treasury.

On the death of Sir Denison Miller, in 1924 under the Bruce-Page Government, the Commonwealth Bank became a bankers' bank instead of a people's bank, thereby strengthening the position of private trading banks.

Casting my eyes into the future, I envisage a free and prosperous people emancipated from the evils associated with vested interests centered in financial control of trade and industry. With financial policy under public control I see the desires of the people expressed in finer public institutions, better houses, homes instead of mere shelters, improved educational facilities, school buildings, sound health and nutrition, and opportunities for recreation and higher culture brought within the reach of all without the crushing burden of debt and taxation.

If the great ideals for which the New World Reconstruction Movement stands are to be in the world of to-morrow, then the Commonwealth Bank must be converted into a people's bank so that it shall be the sole trustee of national credit which it can provide debt-free and interest-free to win the war and win the peace. I, therefore, call upon every citizen in this vast audience and throughout the Commonwealth to rally to the support of the New World Reconstruction Movement to achieve these great objectives." [141]

Between 1914 and 1924, the Commonwealth Government itself created whatever finance it needed, debt-free and without incurring the large interest charges to private banks. This saved the government immense sums in interest.

"Under the regime of the private banks, the flotation expenses of a loan in London, which Australian Governments would have had to pay, were 6%: but the Commonwealth Bank floated $700 million of loans for a charge of 0.56%, thus saving Australians some $12 million in bank charges. Even then the Bank made a profit of 0.2%." [146]

"By utilising Australian notes in this manner the Commonwealth Government avoided debt, interest charges. and taxation, and before it finally entrusted the Australian Notes Account to the Commonwealth Bank, it made enough money out of that account to pay the greater portion of the construction cost of the East-West Railway, the remainder coming out of revenue. (Hansard, Vol. 129. p. 1930)."

"With (and sometimes without) the assistance of the private banks, it saved the Australian primary producer from stark ruin by financing pools of wheat, wool, meat, butter, cheese, rabbits and sugar to the total amount of $872 million. It found $4 million for the Commonwealth Fleet of Steamers, which again saved the primary producer from ruin through lack of transportation facilities to his market overseas. It enabled Australia to transfer abroad, with the maximum efficiency and minimum expense $7,121,902 for the payment of her soldiers. [146]

In 1921, Sir Denison Miller was reported in the Australian press as saying "The whole of the resources of Australia are at the back of this bank, and so strong is this Commonwealth Bank that whatever the Australian people can intelligently conceive in their minds and loyally support, that can be done." [146]

The Commonwealth Bank's first Governor, Denison Miller said that the Bank did not need capital because "it is backed by the entire wealth and credit of the whole of Australia."

D. J. Amos

"When, during an interview in 1921, Sir Denison Miller was asked if he, through the Commonwealth Bank, had financed Australia during the war for $700 million, he replied: "Such was the case and I could have financed the country for a further like sum had the war continued." Again, asked if that amount was available for productive purposes in times of peace, he answered in the affirmative." [142] [143]

"As a matter of fact, he had just given a striking example of the power of the Bank in times of peace. In the latter half of 1920, the banks in other parts of the world started their policy of deflation, in order to raise the value of currency to such high levels that they, who possessed the monopoly of it, could secure the real wealth of the nations for themselves and in the winter of 1920-21, says Robertson, the price-level was saying, like Alice as she shot down the rabbit hole, I wonder if I shall fall right through the earth. The private banks in Australia commenced to follow the example set by the banks abroad, but Sir Denison Miller brought the Commonwealth Bank with a rush to the rescue of the threatened people, partly by purchasing Commonwealth and other Government securities and partly by increasing his advances, he released, between June and December, 1920, $46 million of additional currency, as a slight hint as to what he would do if necessary and deflation in Australia was deferred. (Commonwealth Bank balance sheets)" [144]

David Kidd 2001

"Australia's own government established Commonwealth Bank achieved some impressive successes while it was "the peoples' bank", before being crippled by later government decisions and eventually sold. At a time when private banks were demanding 6% interest for loans, the Commonwealth Bank financed Australia's first world war effort from 1914 to 1919 with a loan of $700,000,000 at an interest rate of a fraction of 1%, thus saving Australians some $12 million in bank charges. In 1916 it made funds available in London to purchase 15 cargo steamers to support Australia's growing export trade. Until 1924 the benefits conferred upon the people of Australia by their Bank flowed steadily on. It financed jam and fruit pools to the extent of $3 million, it found $8 million for Australian homes, while to local government bodies, for construction of roads, tramways, harbours, gasworks, electric power plants, etc., it lent $18.72 million. It paid $6.194 million to the Commonwealth Government between December, 1920 and June, 1923 - the profits of its Note Issue Department while by 1924 it had made on its other business a profit of $9 million, available for redemption of debt. The bank's independently-minded Governor, Sir Denison Miller, used the bank's credit power after the First World War to save Australians from the depression conditions being imposed in other countries.

The Commonwealth Bank was unable to save Australia from the depression of the 1930s because it had been effectively strangled in June, 1924, when the Bruce-Page Government brought in a Bill to amend the Commonwealth Bank Act by taking the control of the Commonwealth Bank out of the hands of its Governor, and placing it in the hands of a directorate consisting of the Governor of the Bank, the Secretary of the Treasury, and six persons actively engaged in agriculture, commerce, finance, and industry, to be appointed by the Governor-General (which in practice meant the Bruce-Page Government). The effect of the Bill was to place the Bank absolutely under the control of a body of men who might be bitterly opposed to any competition with private banking." [145]

David Kidd

"Such history of money does not even appear in the textbooks of public schools today." [145]

David Kidd

"At the turn of the century, there was nothing that Australians could not afford. Per head, we were the richest people on Earth. Our life expectancy was the longest in the world."

So runs the introduction to a 1987 film series produced by Film Australia and entitled "Last Chance for the Lucky Country" (ISBN 0642 13106 6). It seems that Australia had the highest or close to the highest standard of living right up until about 1960. But the introduction continues:

"Today, our rank has dropped. 16 countries lead us in wealth. After Mexico and Brazil we are, per head, the largest debtor nation on Earth."

That was in 1987. By the end of 1997 our standard of living had dropped below 23rd, we were further in debt, and the value of our dollar had dropped to a near-record low. By 2001 our dollar had set a series of new record lows, and will keep going that way unless someone has the courage to reform Australia's monetary system so that money is created without it becoming an interest-bearing debt to banks." [145]

[140] King O'Malley. His speech in Federal Parliament on his proposed national bank on 30 September 1909."

[141] Werribee Shire Banner 24 June 1943 His speech at the New World Reconstruction Meeting on 27 May 1943.

[142] The Story of the Commonwealth Bank by D. J. Amos Ninth Edition.

[143] 'Australia's Government Bank'. p. 275 by L.C. Jauncey, Ph.D. See also Treasurer Spender's speech in Hansard. Vol. 161. p. 976/7

[144] The Story of the Commonwealth Bank by D. J. Amos Ninth Edition

[145] 2001 by David Kidd

[146] The Saga of a Peoples' Bank. Original text written by D Amos