THE BANKSTERS OF THE 1920s AND 1930s:
DID THEY ‘ADVISE AND ASSIST’ OR DID THEY MANIPULATE?
Elisabeth Kirkby
Abstract:
I have just completed my PhD thesis on the impact of the Great Depression in Australia.
While checking footnotes I became aware of an area of academic controversy that had never
come to my attention before. Central to my research was the control exercised by the Bank of
England over the Commonwealth Bank of Australia, and the inability of the Scullin Labor
Government to avoid the draconian regime imposed by Sir Otto Niemeyer. Orthodox
deflationary measures did nothing to create employment, and even mildly inflationary policies
were frowned on by financiers and businessmen in Australia and in Britain. This paper
discusses the control exercised by the Bank of England, and how other historians have
interpreted the events that limited the policies introduced by the Labor Administration led by
J.H. Scullin from 1929 to 1932, and by the United Australia Party under the leadership of J.A.
Lyons from 1932 to 1939.
I carried out my initial research in the Archives of the Bank of England and the Archives of
the Reserve Bank of Australia, now the guardians of the Commonwealth Bank of Australia,
the entity that acted as a central bank in the 1930s. In the 1930s, the Commonwealth Bank
was not a central bank in the accepted sense; legislation introduced in the late 1920s to
establish a central bank was opposed by the Chairman of the Commonwealth Bank Board, Sir
Robert Gibson, also by the Governor of the Bank of England, Sir Montagu Norman. These
two influential men were extremely powerful in banking circles during the Great Depression.
In fact, Sir Montagu Norman was powerful in world terms, not just in Britain and Australia.
Sir Montagu Norman’s background was privileged to an extent that is difficult to
understand today, not just because he was educated at Eton and Cambridge but because he
came of a family of bankers; both his maternal grandfather and his paternal grandfather had
also been governors of the Bank of England.1 Norman did not graduate from Cambridge; he
dropped out after a year and went to work for Brown Brothers, bankers in New York, and
became a close friend of Benjamin Strong, later Governor of the New York Federal Reserve
Bank.2
Norman was named to the Court of the Bank of England in 1912, became Deputy
Governor in 1917 and Governor in 1920. He served as Governor until 1944, and during the
1
1920s was involved in international banking, not just with his friend Benjamin Strong of the
US Federal Reserve, but also with Hjalmar Schacht, the President of the Reichsbank, (the
German central bank during the period of the Weimar Republic). Mullins, the author of The
Secrets of the Federal Reserve, asserts that the three were responsible for the easy money
policies of the 1920s that led to the Stock Market Crash of 1929.3 This view is supported by
Brian Johnson, who states that Norman and Strong agreed to keep New York interest rates
below those of London, thus encouraging the escalation of speculation.4 This situation is
relevant to Australia, as it was during the 1920s that Stanley Bruce borrowed large sums of
money from the United States as well as from Great Britain to develop his policy of ‘men,
money and markets’.5 Johnson suggests that the meetings held by the three leading bankers
were never reported, although they were dealing with the movement of gold, world trade and
the global economy.6
It is difficult to assess if Sir Robert Gibson would have been aware of the activities of
Norman, Strong and Schacht, but it is likely that he would not have known, as he did not have
a background in international banking. When Robert Gibson came to Australia in 1890, he
was employed as a draughtsman and designer. His first company, Austral Manufacturing,
designed bedsteads; later he set up a company, the Lux Foundry, that manufactured light
metal products such as fuel stoves, metal grates and baths. He became a member of the
Victorian Chamber of Manufacturers and initiated their insurance company. In 1916 he
became the Victorian representative on the Central Coal Board, was later Chairman of the
Economy Commission from 1918 to 1921, the body set up to examine inefficiencies in the
Public Service. He was appointed to the Victorian State Electricity Board in 1919 and as the
Commonwealth representative on the Board of the Commonwealth Oil Refineries in 1920. He
later joined the boards of the National Mutual Life Association and the Union Trustee
Company and was President of the Victorian Chamber of Manufacturers from 1922 to 1925.
2
This experience made him a wealthy and influential businessman but he was not a banker, nor
did he have any formal academic training as an economist. He was also an elder of the
Presbyterian Church, with strict views on the avoidance of debt and speculation, and he
distrusted politicians. In a few words, he was a dour Scot with an explosive temper and he
hated publicity.
He was gazetted an original member of the Commonwealth Bank Board in 1924,
when the seven man board was established, and was elected as chairman in 1926.7 He served
in that capacity until his death in 1934, as a staunch defender of deflationary policies
determined to ‘maintain external financial solvency and the sanctity of contracts’.8
This approach earned Gibson the support of conservative businessmen and politicians,
but he became the bane of the Labor Party as he refused to support any of the policies that
might have alleviated rising unemployment. Gibson was convinced that governments could
not be trusted with money.9 It is reasonable to assume that he would not have supported
President Woodrow Wilson’s fight to establish the Federal Reserve Bank in the United States
to break what Wilson believed was the ‘money monopoly’. Wilson had declared that ‘the
nation would not accept “any plan which concentrates control in the hands of the banks”.’10
While Gibson was building up his manufacturing companies, Woodrow Wilson was
fighting Republican congressmen and senators in an attempt to control the banks in America.
It was a fight that took up all of his energy and it was not until December 1913 that he was
able to sign the Federal Reserve Act into law; he made many compromises in order to get the
Act passed as the American Bankers Association wanted ‘one central bank generally
controlled by bankers and generally independent of government regulation’.11
A similar situation was reflected later in Australia when the Australian Senate blocked
the Central Reserve Bank Bill in 1930, because the business community objected to the
appointment of a new reserve bank with a board appointed by the Government.12 This
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proposal was the one Gibson feared because if the government had the power to appoint a
new board, it was likely that they would appoint a new chairman. To prevent this happening,
Gibson looked for the support of Sir Montagu Norman, and at this point the academic debate
begins.
Stuart Macintyre, Professor of History at the University of Melbourne and the author
of The Succeeding Age, 1901-1942, and C.B. Schedvin, author of Australia and the Great
Depression, both discuss the Niemeyer Mission of 1930 and cite references from the
Commonwealth Treasury, the Reserve Bank of Australia and the Bank of New South Wales.
They suggest that Niemeyer’s visit was organised by Sir Montagu Norman and Sir Robert
Gibson because, as bankers, they were suspicious of the motives of a Labor government. The
same view is held by Barrie Dyster and David Meredith, authors of Australia in the
International Economy in the Twentieth Century.13
Macintyre asserts that in Britain, the Labor Government in Australia was considered
far too radical for British financiers who were as hostile to trade unions as Australian
financiers:
Among trade unionists and radicals there was an entrenched hostility towards the
Money Power, dating back to the bank failures of the 1890s … This portrayal of the
banks as parasites battening onto the wealth of the toilers was strongly nationalist,
with anti- Semitic tones. It expressed a populist belief in the essential congruity of
interests among Australian producers—manufacturers, farmers and wage-earners—
and it generated a conspiratorial explanation of the economic crisis.14
Macintyre also states that the origins of the Niemeyer mission: ‘were given the cosmetic
appearance of an invitation from the prime minister but it was arranged beforehand between
the Bank of England and the Commonwealth Bank’.15 Documents in the Archives of the Bank
of England support that statement and it is strange that this view should be disputed by
Bernard Attard in his paper The Bank of England and the Origins of the Niemeyer Mission
1921-30.16 As Attard is one of the sources I use for my thesis, as well as Macintyre and
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Schedvin, I decided to look again at the notes I made during my time in the Archives of the
Bank of England to see what I had missed.
The Archives of the Bank of England are very sterile. You have to book a long time in
advance to be allowed access and then for only two days at a time. Obviously with such
restricted time, you can look at only a limited number of documents. Many of the documents I
studied in 2009 had been studied by Attard, so we have common sources, but there are others
that I have not seen. However, I think the material I have read confirms the views of
Macintyre and Schedvin, and is bolstered by the material studied in the Archives of the
Commonwealth Bank of Australia. I went back to my notes to remind myself of questions I
asked at the time, but which don’t seem to have occurred to Attard.
One of the most important is the time frame: Scullin was elected in October 1929; his
ministry took office on 22 October, only a week before the Stock Market Crash on Wall
Street. The immediate reaction of the Scullin Administration was to raise tariffs, and then
attempt to alleviate unemployment with a grant of £1,000,000 to the States on a population
basis ‘to provide relief work for the unemployed’.17 But by January 1930, with unemployment
growing and revenue falling, Scullin decided to approach the British Government and ask if
Australia could delay payment of the war debt. This request was passed on to the Bank of
England by the Chancellor of the Exchequer, and gave the Bank of England an opportunity to
ask detailed questions about Australia’s financial position. Some of these questions were
impossible to answer: for example, what prices did Australia expect for wheat and wool
during the coming year, a year when the world economy was obviously in crisis after the
Stock Market Crash. As a result, the answers given by Australia were vague and gave the
Bank of England officials who had charge of the matter sufficient reason to be critical. They
were even more critical when the trading banks in Australia announced the devaluation of the
Australian pound to the pound sterling.18
5
By that time, Stanley Bruce, the former Prime Minister who had lost his seat in 1929,
had gone back to London and was in contact with the Bank of England. It is likely that his
involvement was facilitated by Sir Ernest Clark, a member of the Joint Exchequer Board of
Great Britain, who had been part of the Hirst financial mission to Australia in 1928-1929
when Bruce was Prime Minister. The file in the Bank of England Archives relating to the
Niemeyer mission contains a confidential letter dated 31 March 1930 to Sir Ernest Clark from
Sir Ernest Harvey, the Deputy Governor of the Bank of England, requesting a meeting to
learn more of conditions in Australia. It reads ‘The matter is urgent as S.M. Bruce is coming
to see the Governor of the Bank of England 1st April 1930.’19 It is pertinent to ask in what
capacity Bruce arranged such a meeting with the Governor of the Bank of England, as in
1930, he held no official post in London, except as a board member of the family firm,
Peterson, Laing, Bruce. He did not regain his parliamentary seat until 1931, and did not
become High Commissioner until 1932. In my notes, I wrote ‘In what capacity?’
The correspondence between the Bank of England and the Commonwealth Bank of
Australia began after that meeting, and throughout May 1930 the cablegrams in code were
detailed and lengthy. On 7 May 1930, Deputy Governor Harvey advises Sir Robert Gibson
that ‘We could perhaps ourselves send privately an intermediary IF INVITED TO DO SO and
if he would be taken into full confidence.’20
Gibson replies in code, on 16 May 1930, ‘that he HEARTILY APPROVES this
course’.21 The correspondence that follows is confusing, but Gibson makes this statement:
As the Governor of the Bank of England is conferring with High Commissioner
previously suggest you inform him not prepared to negotiate further unless clear
understanding position and assurance as to future but you are prepared to send your
own intermediary if invited by the Government to do so on the understanding that he
will be taken into full confidence.22
There is a further cable from Harvey to Gibson dated 22 May 1930 stating that Sir Montagu
Norman offered a choice of intermediary: (a) Sir Otto Niemeyer or (b) Sir Bertram Hornsby
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‘if we can get him’. Norman prefers option (a). He also asks:
would an approach be better as a) a suggestion made at our instigation by Governor
General to Prime Minister and/or Treasurer; b) a suggestion by yourself to one or
other of the latter.23
The cable concludes ‘We assume that so far and so long as possible your Government might
prefer that publicity be avoided.’24 It is signed by Harvey as Deputy Governor of the Bank of
England. Gibson replied on 30 May 1930 accepting Niemeyer as the intermediary and
confirming:
Bank of England to send adviser when invited to do so by the Australian Government.
The approach should be through Bank of England to High Commissioner to the Prime
Minister of Australia.25
Thus the plan was confirmed through a Personal and Confidential cable to Sir Robert Gibson
on 31 May 1930 signed by Sir Ernest Harvey; paragraph five states, ‘It would be the Bank’s
wish to avoid publicity so far and so long as possible.’26 The cable sent by Prime Minister
Scullin to Sir Ernest Harvey inviting the intermediary is dated 6 June 1930, but it seems clear
there had been a month of negotiation before Scullin became personally involved. This is the
point of difference between Macintyre, Schedvin and Attard. Attard appears to be convinced
that Scullin had previously been aware of the negotiations between Norman as Governor of
the Bank of England through Harvey, his Deputy, with Gibson as Chairman of the
Commonwealth Bank of Australia. The archival references used by Attard reflect references
used by Macintyre and Schedvin, although there are some used by Attard that refer to other
sources including the Public Records Office. It is interesting that Attard reveals that ‘an
instruction from Australia to the High Commissioner’s Office has not survived’.27 If it had,
maybe Attard could have proved his assertion, but certainly the impression that I formed
through reading the documents that I examined suggests that the letter from the Prime
Minister to the High Commissioner inviting the Bank of England to send an adviser to
Australia came after negotiations between the Bank of England and the Commonwealth Bank.
7
Perhaps a missing document is not surprising when the Minutes of the Scullin Cabinet June
1931 to 6 January 1932 ‘are not available for copying’. It is noted on the file, that they were:
‘In possession of the Secretary of the Parliamentary Labor Party, being kept in a tin trunk
along with Caucus records in his room at Parliament House, Canberra.’28
There is certainly an opportunity for further research to clarify the divergence of
opinion between Attard’s view of events and those of Macintyre and Schedvin. In his paper
“The Bank of England and the Origins of the Niemeyer Mission, 1921-30”, Attard states:
Contrary to standard accounts, it (the paper) shows that the Labor Government took
the initiative in approaching the Bank of England and was informed at the same time
as the Commonwealth Bank of its desire to send a mission to Australia.29
It is perfectly true that the Labor Government approached the British Government to
ask if the interest on the war debt could be postponed; this was the request that led the Bank
of England to ask the awkward questions that the Australian Government could not answer
satisfactorily, but it was the Bank of England that suggested to Sir Robert Gibson that:
some person or persons fully informed regarding all aspects of the matter, banking,
economic and financial, could come here as soon as possible to consider with us best
method of dealing with the situation .30
Schedvin considered this proposal ‘extraordinary’. He points out that the
Commonwealth Government and Loan Council already had experienced negotiators as their
representatives in London: J.R. Collins, for the Loan Council, and J. Scott, the London
manager of the Commonwealth Bank. Schedvin asks: ‘How then could an additional emissary
do more than has already been done?’31
However, copies of correspondence between Niemeyer and Sir Montagu Norman sent
to me in September 2012 from the Bank of England show that Niemeyer had a very low
opinion of Scott.
Attard criticises the ‘radical elements’ in Australia who condemned the evils of
capitalism and denigrated ‘money power’, and there is no doubt that some members of the
8
Labor Party and some left wing unionists objected to bankers in London dictating to a
democratically elected Labor government in Canberra. But he does not give as much weight
to the objections of British businessmen who had no time for a labour government in a British
dominion. Labour governments supported unions, unions fought for high wages and a decent
standard of living for blue collar workers. As far as Britain was concerned, Australia should
supply Britain with wheat, wool and sugar, and take manufactured goods from Britain in
return. Above all, Australia should repay, on time and in full, the money borrowed during
World War One and during the 1920s.
Gibson made quite sure that the Bank of England knew all about his personal
concerns, and in a personal cable to Sir Ernest Harvey dated 5 April 1930, he discusses the
Central Reserve Bank Bill under consideration in Australia and complains that if the proposed
reserve bank was established, the Board would be appointed by the Government. His view
was that: ‘Government appointments therefore more susceptible to political pressure …
danger of purely political appointments … services of present board may be entirely
dispensed with in either bank.’32
Gibson also reveals that he had advised the Government that such changes were
unwise until ‘the financial position has been adjusted but his advice was not acceptable’.33
This cable is a personal plea for support, not a formal negotiation on behalf of the Australian
Government. There is no doubt that Gibson was afraid that if the legislation was enacted, his
position as Chairman of the Board would be jeopardised.
Attard believes that the correspondence between Norman and Harvey at the Bank of
England and Gibson of the Commonwealth Bank was conducted as the bank would with the
Chairman of a central bank,35 but they must have known that it was not a central bank (in fact
that is what they were trying to prevent); also they were equally aware of Niemeyer’s plan to:
9
concentrate the London business affairs of the Commonwealth as much as possible in
the hands of the Commonwealth Bank to the relative exclusion of Australia House, a
project on which Gibson is very keen.36
This correspondence shows that the Bank of England was happy to deal with Gibson
who held the same rigid deflationary views as they did. They excluded the High
Commissioner Ryrie and his adviser, R.G. Casey, knowing that both had an obligation to
report back to the Scullin Cabinet. To deal with Gibson gave them the opportunity to keep
their views from ‘the politicians’. This distrust of ‘politicians’ was referred to over and over
again in the correspondence between the banks that continued long after Niemeyer returned to
Britain in November 1930. Niemeyer himself continued to advise Sir Robert Gibson, until
Gibson’s death in 1934, and then advised his successor, Sir Claude Reading, during the Lyons
Administration from 1932 to 1939. It could not be said that Lyons was influenced by a radical
caucus or supporters who fought against wage cuts and orthodox deflationary measures, but
even so the Bank of England used all its influence to continue to control monetary policy in
Australia.
Methods of exerting control over the Commonwealth Bank were discussed in a letter
from Niemeyer to Sir Montagu Norman in September 1930 when Niemeyer reveals that he is
now discussing with Gibson ways to strengthen the position of the Commonwealth Bank in
London:
This would be done by appointing ‘independently of the Act’, two friends or fairy
godfathers or whatever you like to call them who would in fact be his direct London
advisers … I know he would be very happy to have Strakosch and myself.37
This view is confirmed when Norman replies to Niemeyer, by way of a cable dated 15
October 1930, ‘We should welcome effective control of London office by Strakosch and
yourself (of Commonwealth Bank).’38 Note the word ‘effective’.
In my thesis, I go into detail about the lengthy correspondence between Niemeyer and
Gibson, and later between Niemeyer and Sir Claude Reading. The cables and letters
10
continued until 1936, sometimes on a daily basis, and show that Niemeyer ‘instructed’
Reading on how to handle questioning when called before the Royal Commission on Money
and Banking in 1935, when Niemeyer was still insisting that Australia should not have a
central bank: ‘I believe she can achieve all she wants in this direction much more easily
without legislation by a day to day process of adaptation.’39
From Niemeyer’s point of view it certainly made it easier for the Bank of England to
maintain ’effective control’ of the Commonwealth Bank. Such control went way beyond the
consultation between the Bank of England in accordance with ‘the established conventions of
central banking’.40 However, Attard maintains that the Bank of England was not ‘participating
in a conspiracy against Labor’,41 but surely it would be true to say that the Bank of England
wanted to maintain control over an outpost of Empire that had been foolish enough to
introduce tariffs and interfere with British exports. As far as Bruce is concerned, Attard
acknowledges that Bruce admitted that:
he had been trying to bolster London’s flagging confidence by doing what he could to
help privately by seeing the editors of the financial papers and as many people as he
could who count in the City.42
No one could count more in the City than the Governor and the Deputy Governor of the Bank
of England.
There is a further possible avenue of research; it would mean going back to the
Archives of the Bank of England, the National Archives of Australia, the Public Records
Office and the Archives of the Commonwealth Bank of Australia, and going through the
references used by Macintyre, Schedvin, Attard and Dyster. This might reveal other material
that none of them might have seen. There is certainly material that I haven’t seen, and such a
search might clarify the differences between the historians that Attard claims.
What cannot be denied, however, is that the deflationary policies imposed on Australia
in the 1930s did not create jobs, the conspiracy theories of the radical left may have been
11
exaggerated, but the influence of ‘money power’ imposed by the Bank of England with the
cooperation of the Commonwealth Bank meant that thousands of Australians lived in abject
poverty during the 1930s.
1
Eustace Mullins, Secrets of the Federal Reserve, chap. 11, accessed January 20, 2012.
http://www.whale.to/b/m_ch11.html
2
Ibid.
3
Brian Johnson, The Politics of Money (London: John Murray, 1970), 90.
4
Ibid.
5
Stuart Macintyre, The Oxford History of Australia Volume 4, The Succeeding Age, 1901-1942, (Melbourne: OUP, 1986),
201.
6
Mullins, Secrets of the Federal Reserve, chap. 11.
7
Carl B. Schedvin, “Sir Robert Gibson,” in Australian Dictionary of Biography, ed. Bede Nairn and Geoffrey Searle,
(Melbourne: Melbourne University Press, 1981), vol. 8, 654-656.
8
Ibid., 656.
9
Ibid., 655.
10
Roger T. Johnson, Historical Beginnings: The Federal Reserve, (Boston: Public and Community Affairs Department,
Federal Reserve Bank of Boston, 2010), 20.
11
Ibid., 28.
12
Macintyre, The Succeeding Age, 257.
13
Barrie Dyster and David Meredith, Australia in the International Economy in the Twentieth Century, (Cambridge:
Cambridge University Press, 1990), chap. 6.
14
Macintyre, The Succeeding Age, 257.
15 Ibid., 257-258.
16
This paper appeared originally in Australian Economic History Review, vol. 32, no. 1 (1992), 66-83.
17
Don Fraser, Working for the Dole: Commonwealth Relief during the Great Depression, (Canberra: National Archives of
Australia), accessed March 7, 2010.
http://www.naa.gov.au/naaresources/publications/research_guides/guides/depression/>, 89.
18
Ibid.
19
Bank of England Archives, G1/291, Governor’s File, Letter from Sir Ernest Harvey to Sir Ernest Clark, March 31, 1930.
Sir Ernest Clark was then a member of the Joint Exchequer Board of Great Britain and Northern Ireland. He later became
Governor of Tasmania.
20
Ibid. Cable from Sir Ernest Harvey to Sir Robert Gibson, May 16, 1930.
21
Ibid. Cable from Sir Robert Gibson to Sir Ernest Harvey, May 16, 1930.
22
Ibid. This decoded cable is marked in red ink to denote comments regarded as of prime importance.
23
Ibid. Cable from Sir Ernest Harvey to Sir Robert Gibson, May 22, 1930.
24
Ibid.
25
Ibid. Cable from Sir Robert Gibson to Sir Ernest Harvey , May 30, 1930.
26
Ibid. Cable from Sir Ernest Harvey to Sir Robert Gibson, May 31, 1930.
27
Bernard Attard, “The Bank of England and the Origins of the Niemeyer Mission, 1921-30,” in Australian Economic
History Review, vol. 32, no. 1 (1992), 80.
28
Scullin Ministry - Folder of typed copies of Cabinet minutes, National Archives of Australia, A3264.
29
Attard, “Origins of the Niemeyer Mission,” 66.
30
Carl B. Schedvin, Australia and the Great Depression: A Study of Economic Development and Policy in the 1920s and
1930s, (Sydney: Sydney University Press, 1970), 134.
31
Ibid.
32
Reserve Bank of Australia Archives, 06/18404. Bank of England letters, marked Personal and Confidential. Cable in
code, April 5, 1930. Under the proposed legislation, the bank was to be divided into a new Reserve Bank of Australia and
the Commonwealth Bank would become a Trading and Savings Bank.
33
Ibid.
35
Attard, “Origins of the Niemeyer Mission,” 82.
36
Ibid., 81, footnote 70.
37
Bank of England Archives, N 15, Letter from Otto Niemeyer to Sir Montagu Norman, September 1, 1930.
38
Ibid.
39
Bank of England Archives, Folio 11, Correspondence between Otto Niemeyer and Sir Claude Reading, October 8, 1935.
40
Attard, “Origins of the Niemeyer Mission,” 82.
41
Ibid.
42
Ibid., 74, footnote 41.
12