Ben Chifley was right all along about the banks

With some cosmetic changes such as the establishment of a Reserve Bank, these banking arrangements worked splendidly, under both left wing and right wing governments between 1945 and 1970; but they were swept away, especially from the 1980s onwards.

In the later 1940s, in the face of growing resistance by the private banks, Chifley feared that his wisely crafted legislation might be threatened; so he tried to nationalise the entire banking system. He failed and eventually, as he feared, the banks were allowed the unregulated irresponsibility which is always their first love and - so often - the origin of their community’s most acute distress.

One of Chifley’s more radical ministers, Eddie Ward had misgivings going beyond the local banks. He deeply mistrusted “Wall Street”.

Rather excessively, he argued that signing the Bretton Woods Articles of Agreement would “enthrone a World Dictatorship of private finance, more complete and terrible than any Hitlerite dream,” destroy Australian democracy, pervert and paganise Christian ideals, and endanger world peace. He was influential enough to delay Australian membership of the Bretton Woods agencies - but only for a time. His views were then set aside. Australian membership went ahead.

However, after the US dollar link with gold was broken, currencies floated and IMF policies created so much distress in so many countries, he came to look increasingly like a man of vision. Today he must surely have legions sharing his mistrust of “Wall Street” not only in Australia, but around the world.

So we need to return to much of the thinking by which we were motivated as we rebuilt relatively stable economies after WWII and before 1971. Locally, we must control the banks - unequivocally. We must control the domestic flow of funds so that we avoid the speculative mania and “bubbles” of recent years. We must control the global flow of funds so that the calamitous “volatility” of credit and debt - the monstrous mania of currency and other speculation - never again leads us to the financial catastrophe we know today.

The worst is yet to come. Even the largest and formerly most highly respected economies, such as the United States and Britain, could face sovereign default and national bankruptcy. What has happened to Iceland could happen to them - and many others.

The Australian Government was a leader in policies of post-WWII reconstruction. The situation is more complex now but the basic building blocks of sound financial and economic management have not changed. In many ways, Chifley was right. Eddie Ward was right too. At least he reminds us that we have been too ready to jump on a “Wall Street” financial bandwagon that, for the last two decades or more, surely had “CRASH” emblazoned all over it. We should have counselled caution to our American friends, rather than encourage them or be silent about the self-destructive nature of their policies - for them and, ultimately, also for us.

I do not know how vulnerable the major Australian banks may really be. So far, they seem less at risk than those in the United States or Europe. What is vital is that they be strong enough to give vigorous support to real investment in the real Australian economy in the coming months and years. Especially if there is any doubt on that score, the Australian Government must provide, as a direct banker, the vigour that is lacking. It should acquire or create a public bank along the broad lines of the Commonwealth Bank, as it existed before privatisation. A prudent government should always keep direct ownership and control of at least one major banking institution, quite separately from the central bank. To that extent, Chifley was most assuredly right.

The Australian Government should also be as vigorous as the Chifley government - largely through Foreign Minister Evatt - in advocating multilateral efforts to create a stable and growing world economy. It should take the Chapter X economic and social provisions of the United Nations Charter as a guide and either revitalise the Economic and Social Council or set up a more powerful World Economic Council. Like the Security Council, the WEC should “function continuously,” consider critical situations as they arise, and appoint multilateral working groups to study and report on multilateral policies to advance - on a longer-term basis - the stability, growth and sustainability of the global economy.