CHAPTER 12

Governing during economic crisis: The importance of memory

Joan Beaumont

In the early months of the COVID-19 pandemic, Prime Minister Scott Morrison addressed the House of Representatives:

We know who we are as people, and the legacy and inspiration that has been given to us from those who have come before us and shown us the way through challenges and tests just like this. So we summon the spirit of the Anzacs, of our Great Depression generation, of those who built the Snowy. Of those who won the great peace of World War II and defended Australia. That is our legacy that we draw on at this time.¹

Morrison was not alone in invoking the memory of the Great Depression during the pandemic; in public life the comparison between the two crises was very commonly made. This is not to say that the policy responses of 2020–21 were explicitly shaped by the memories of the Great Depression. Many of the lessons of the Depression years had been taken on board decades earlier. Rather, today’s politicians had learned that in times of crisis, public support for government intervention of an unprecedented kind could be legitimised by the memory of a past national crisis. Facing a threat that again seemed existential, the Australian public needed to hear a narrative of past struggle – a resort to a cultural reference point that was almost instantly recognisable – if it were to find the resilience and cohesion to survive as their forebears had.

It is nearly a century since the Great Depression, but it is still recognised as the greatest economic catastrophe to afflict the world. The crisis was deeply complex – it was a series of crises within crises, generating an ever more disastrous cumulative effect – and it played out differently in various countries. Australia was hit particularly savagely. Thanks to its reliance on the export of a few primary commodities and high levels of public indebtedness, the Australian economy was especially vulnerable to external shocks. By 1932, perhaps a third, or even more, of the Australian workforce was unemployed, while many thousands of Australians lost their businesses, farms, savings and homes. Government budgets were slashed and the nation itself faced insolvency.²

Inevitably, the Great Depression placed immense strain on Australia’s political and social institutions and exposed yawning policy gaps. In the decades that followed, many of these would be consciously addressed. But, in time, the direct impact of the Depression on policymaking would become more tenuous. New macroeconomic theories evolved, new generations of policymakers came to power and the Australian economy adjusted to the challenges of globalisation in the late twentieth century. Yet, if the link between policymaking and the Great Depression weakened, its memory continued to infuse public discourse in times of crisis. As the response to the COVID-19 pandemic in 2020 and 2021 showed, the Great Depression remained a powerful collective memory, in that its very name invoked an instantly recognisable image of economic and human catastrophe that might be repeated if the new crisis were not met with an extraordinary policy response.

Trapped by orthodoxy: Government responses to the Great Depression, 1929–32

The challenges posed by the Great Depression were initially well beyond the capacity of Australia’s policy instruments and institutional capacity to resolve. It was not simply that the federal government had more limited power to impose its agenda on the states than it does today, but Canberra’s capacity to formulate and manage national economic policy was rudimentary.³ The role of the Commonwealth Treasury, which was staffed at the senior level by accountants, was confined to supervising the collection of government revenue and expenditure, and managing loans issues. It did this in conjunction with the Commonwealth Bank, which then scarcely functioned as a central bank. Professional economists were only just emerging as an external source of policy advice to governments, and politicians had limited exposure to Keynesian and monetarist theories, both of which were in their infancy. Even more importantly, there was little history of state intervention to regulate the economy.

The most significant policy gap in the Depression years was the lack of a social welfare safety net. Prior to 1929, the federal government offered a range of pensions: old age and invalid pensions (introduced in 1908); maternity allowances (1912); and a generous suite of ‘Repatriation’ benefits granted to the returned soldiers of the First World War and the families who had lost breadwinners. But there was almost no provision for the relief of the unemployed. Only Queensland had a system of contributory unemployment insurance, introduced by the reforming Labor government of Edward (Ted) Theodore in 1923. Across the nation, the primary responsibility for giving aid to the unemployed and other destitute Australians resided with charities, churches and municipal authorities.

This reliance on voluntarism was soon anachronistic. With unemployment soaring in 1929–30, it was clear that charities often staffed by well-meaning, if sometimes controlling, middle-class matrons, could not cope, even with some government funding. All state governments thus introduced, from 1930 on, systems of ‘sustenance’ (aka ‘susso’) whereby the unemployed were given rations of food and other basic commodities. The regulations were often contentious, the dole was subject to means testing, and officials tended to view the unemployed as work-shy and inclined to fraud, rather than as victims of global economic forces. Still the ‘susso’, together with a plethora of community fundraising and voluntary relief programs, held starvation at bay. Meanwhile, modest government-funded relief programs (mostly constructing public infrastructure or rural development) offered many unemployed Australians some work, albeit part-time and often on sub-award wage rates. Importantly, most of these initiatives were funded and managed at the state or local level, rather than the federal.

This was partly because of a second major policy constraint that the Great Depression exposed: the limits on the ability of the federal government to control monetary policy. The director of the Commonwealth Bank, the Scottish-Australian Sir Robert Gibson, was implacably opposed to deficit financing and committed to ‘sound finance’. So, too, were the conservative (Nationalist) majority in the Senate, the rest of the Australian banking sector and the City of London, which was scathing about Australians’ financial acumen and their ability to service their already massive debts. Throughout 1930 and 1931, Gibson consistently blocked the expansion of the money supply that many on the left of the Labor government of J.H. ( Jim) Scullin, including Theodore (now treasurer), believed to be necessary to stimulate the economy and reduce unemployment.

Devaluation of the currency, another policy option which could have assisted recovery by making Australian exports more competitive, was also resisted by Gibson and many others in the private banking sector that largely controlled currency exchange. Even when, in late 1929, Australia effectively abandoned the gold standard, which required convertibility of the currency into gold, many of the private banks remained committed to maintaining the Australian pound as close to parity with the pound sterling as possible.

In effect, the Commonwealth Bank had a veto over monetary policy. After a divisive ‘battle of plans’ in early to mid-1931, when the NSW Labor premier, Jack Lang, outraged conservatives by refusing to pay interest on his state’s debts, policies of deflation were adopted, to varying degrees, across the nation. Budgets were balanced, and salaries and interest rates cut, in an effort to spread the burden of the Depression equitably across society. With its radical wing in uproar, the ALP split, as it had over military conscription in 1916–17. The United Australia Party, a hybrid of non-Labor forces that came to power in early 1932 under a Labor defector and former Tasmanian premier, Joseph ( Joe) Lyons, waited for the international economy to recover – as, indeed, it started to do, slowly and spasmodically, from 1932 on. Only the outbreak of the Second World War, however, brought full employment, in 1941.

Yet, if the advocates of deflation won the day in 1931, politicians across the political spectrum knew that policy reform was necessary, especially in social welfare and banking. The Lyons government from 1932 to 1939 lacked policy innovation – it was memorably called by Paul Hasluck, then official historian of the Second World War, ‘an emergency government that outlived the emergency’ – but even conservatives accepted the need for an established system of unemployment relief.⁴ The attempts to introduce a contributory national insurance scheme in the late 1930s, however, unravelled in the face of opposition from a formidable array of medical practitioners, communists, grassroots organisations and those who thought the priority in government expenditure should be defence, given the threatening international environment.

After the depression: Social welfare and financial reform

When war finally came, and the ALP subsequently returned to power in October 1941, major reform in social welfare policy was possible.⁵ The memory of the Great Depression was still raw for Australia’s Labor leaders, John Curtin (prime minister, 1941–45) and Ben Chifley (treasurer, 1941–45; minister for post-war reconstruction, 1942–45; prime minister 1945– 49). ‘I cannot forget,’ Chifley said in November 1946, ‘how miserable those hundreds of thousands of men must have felt when they went back each night to their families after tramping the streets all day in search of work.’⁶ But other influences also worked to create a climate for reform. For one thing, Australia’s leaders, like those in the United Kingdom, knew that they had to offer their citizens the hope of a better postwar world if they were to demand the sacrifices required by war mobilisation. Furthermore, the signing of the Atlantic Charter by the Allied Powers in 1941 committed them to global economic co-operation, the advancement of social welfare, and the pursuit of a world free of want and fear. Finally, the comparatively orderly conversion of the Australian economy to a total war footing in the early 1940s appeared to confirm that governments could intervene in the economy to a greater degree than before with desirable social and economic effects.⁷

Thus, from 1943 on, Australian delegates to major international conferences sought to have a commitment to full employment enshrined in the multinational agreements that the war spawned. In 1945, the team of the External Affairs Minister, Dr H.V. Evatt, lobbied successfully for the United Nations Charter (article 55) to include the aim of promoting ‘higher standards of living, full employment and conditions of economic and social progress’. At home, the Chifley government, fearful of a postwar slump, introduced the Unemployment and Sickness Benefits Act 1945 and progressively built the foundations of a fully-fledged welfare state. Inevitably, such reform had its critics, among them the then leader of the Liberal opposition, Robert Menzies, who thought the recipients of welfare should make contributions rather than be mendicant on the state. But by the late 1940s, there was a bipartisan consensus that the Australian state had an obligation to support those who were unable to work, be it through sickness, accident or economic change.

It is a principle that has lasted to this day. This is not to say, of course, that the dole has been an arena free of ideological contest. Far from it. As in the Depression years, governments across the decades have debated the levels of support, the degree to which eligibility for the dole should be means tested, and the obligations, if any, of the unemployed to work for their benefits. Still, for all the disputation, no one contests the need for the Australian state to provide a social safety net of sorts. This was a policy issue ‘resolved’ by the Great Depression.

The question as to who controls monetary policy was also progressively worked through in the decades after the Depression. Once again, Lyons was not inclined to take the initiative, but such was the distrust of the banks, who had fore-closed on property owners and tightened credit in the early 1930s, that Lyons established in 1936 a royal commission on banking, and monetary and exchange systems. This recommended that there should be a mechanism to ensure close and cordial relationships between the federal government, the Loan Council (which had been established by state and Commonwealth governments in 1923 to coordinate federal and state debt raising) and the Commonwealth Bank. While the bank must retain its independence, the government should have primacy in the event of any irreconcilable difference of opinion about monetary policy.⁸ Addressing two other issues that had proved contentious in the previous decade, the royal commission also recommended that the Commonwealth Bank should hold the surplus foreign exchange reserves of the private banks, and that these banks should be obliged to keep deposits with the central bank up to any percentage approved by the federal treasurer.

Again, little happened until a decade later. In 1945, the Chifley government passed legislation that confirmed the obligation of the Commonwealth Bank to give effect to government policy. Chifley, alas, then overreached himself. When, in August 1947, the High Court struck down the requirement in the 1945 banking legislation for state and local government authorities to conduct their business with the Commonwealth Bank, on the grounds that this infringed the constitutionally guaranteed freedom of interstate trade, Chifley attempted to nationalise the banks. Public ownership, he insisted, would ensure banking was conducted in the national interest. It was a rash move that proved to be ‘a compelling case study in how not to do public policy’.⁹ The High Court again ruled in favour of the banks. So, too, did the Privy Council in London. With the banks pouring their resources into a hysterical anti-socialist campaign, and the majority of the population opposing nationalisation, Chifley’s government fell in the December 1949 election.

The principle of government primacy in monetary policy endured, however. In 1959, the Reserve Bank of Australia was created, separating the previous trading and savings bank functions of the Commonwealth Bank from its role as a central bank. The independence of the Reserve Bank from the political process in the operation of monetary policy was again affirmed, but once more the legislation enshrined that if there was an irreconcilable difference between the bank and the government, the politicians would prevail – on the condition that they present to parliament the reasons for their disagreement with the Reserve Bank.¹⁰ This provision has never been invoked. Disagreements between governments and the Reserve Bank triggered some discussion about invoking clause 11 in later decades, but in the event, one side or the other backed off.¹¹

A post-depression generation brings new policy directions

It is difficult to determine with any precision when the influence of the Great Depression on social and financial policy ceased to be explicit and direct, but its influence faded with generational change and new macroeconomic thinking. By the 1980s, Australia’s national leaders were essentially a post-Depression generation with few, if any, personal memories of the crisis. Malcolm Fraser was born in 1930; Bob Hawke in 1929; John Howard in 1939; and Paul Keating in 1944. With the passage of time, too, the Australian population’s experience of mass unemployment receded into the emotional distance. Although the rates of unemployment would rise in the last quarter of the twentieth century – and, at their worst, would be more than 10 per cent – they never came near the stratospheric numbers of 1932.¹²

Moreover, policy formulation is never mono-causal. Even in the cases cited above, multiple influences were at work, making the Depression only one of the factors shaping change. From the 1930s on, economic and financial policy was shaped by new macroeconomic theories: Keynesian economics, and as these proved unable to cope with the stagnation of the 1970s, monetarism and neoliberal market-oriented economics. The transformation of Australian economic policy in the latter part of the twentieth century was not driven by any ‘lessons’ of the Great Depression but by a need to make Australia more competitive in an increasingly globalised environment. This inspired the slashing of tariff protection for the manufacturing sector, a shibboleth of all parties in the 1930s, and the deregulation of the economy (including the floating of the Australian dollar in 1983); the easing of restrictions on the entry of foreign banks into the domestic retail banking sector; the corporatisation of public enterprises, banking and the transport sector; and the reform of the highly centralised labour market. These reforms were accompanied by a hardening of rhetoric towards the unemployed, as job security was eroded by offshore competition, automation and the pursuit of ever greater efficiency.

Yet, if the direct connection between the Depression and policy innovation weakened over the twentieth century, we should not discount the continuing symbolic power of that massive economic and social crisis. Even as Australians ceased to have any direct experience of the Depression, it persisted as a powerful historical narrative in Australian political life. Many Australians remembered this crisis through the stories, images and behaviours they grew up with – what we might call ‘post-memory’.¹³ They recalled their parents or grandparents being risk-averse, hoarding their savings in the bank rather than spending them on luxuries, and being timid about financial exposure. They remembered, too, tales of shanty towns on Australia’s riverbanks or town outskirts, long queues of desperate men waiting for work or the dole, and single men hawking pathetically small bags of low-value items from door to door in the city and country. But the details of this post-memory are hazy, and the Depression has never competed in the national imagination with the mass slaughter, destruction and genocide of the wars that preceded and followed it. While the centenary of the First World War produced a torrent of publications and an orgy of commemorative activities, anyone looking to find memorials to the relief works of the Great Depression will be disappointed. No one has proposed that we invest the same amount of taxpayers’ money in recording the names of the countless thousands thrown into unemployment, bankruptcy and poverty during the 1920s and the 1930s as we have in digitising the files of Australia’s defence personnel. None of the anniversaries of key events of 1929 to 1932 appear on the national commemorative calendar.

The power of the Great Depression in collective memory

But for all this, the Great Depression has remained in the Australian public discourse as an enduring site of collective memory. The term ‘site of memory’, popularised late in the last century by the French scholar Pierre Nora, is commonly assumed to relate only to physical sites, such as Gallipoli and the Western Front, or material objects, such as the cenotaphs, obelisks and statues of ‘diggers’ that populate public spaces in almost every Australian town. But ‘sites of memory’ can also include, to quote Nora, ‘the products of reflection, such as the concept of a historical generation … or the “region” as an object of memory, or certain “divisions” in the way the French perceive their national territory’.¹⁴ In Australia’s case, the Anzac legend is the pre-eminent example of such a site of memory, but the ‘Great Depression’, too, has become enshrined as a cultural point of reference: a time of unprecedented social distress and policy failure during which Australians manifested a remarkable capacity to survive, thanks to community and personal resilience.

The power of this collective memory became strikingly apparent during the COVID-19 pandemic crisis which afflicted Australia from 2020 on. When the social and economic implications of this global health catastrophe began to be evident, the federal government moved quickly to install systems of financial support that would have been unthinkable in the early 1930s. Through the JobKeeper payment, the federal government ensured that Australians continued to receive income while the businesses that employed them lost their revenue stream. Through JobSeeker, it increased the payments to those already on unemployment and sickness benefits. Beyond this, businesses were allowed to trade when insolvent, while the banking sector, despised during the Great Depression as rapacious ‘Money Power’, provided many borrowers with mortgage ‘holidays’ and deferral of loan repayments.

All of these schemes had their limitations, of course. JobKeeper and the increase in payments under JobSeeker lasted only until March 2021. Minimal provision was made for casual workers, for those on temporary working visas and for international students (often one and the same). In early 2021, the banks started to require homeowners to repay their loans, and tenants became vulnerable as rental moratoriums ended.¹⁵ But still, there were none of the haunting scenes of the Depression when families defaulting on rental payments were thrown into the street, and the rain, together with their furniture. Moreover, as lockdowns continued during 2021 in the face of the more infectious Delta variant, the federal government renewed its financial support to individuals and industries that faced significant losses of income and revenue. These responses of government to the COVID-19 pandemic might have been incomplete and politicised but they attested to a radically different understanding of the role of the state from that of 1929.

This response, it should be said, had an economic as much as a humanitarian logic. It had long been recognised, by Keynesians and monetarists alike, that stimulus packages were a far sounder response to recession than the deflation of 1930–32 which had only deepened the economic crisis. A collapse of property values, if there were widespread foreclosures on mortgages and rental evictions, would prolong the economic damage of the pandemic. But the responses to the COVID-19 crisis were also invested with legitimacy by the reference to the collective site of memory, the Great Depression.

In federal parliament the COVID-19 pandemic was routinely compared with the Great Depression. A digital search of debates in the House of Representatives and Senate reveals 179 explicit references to ‘the Great Depression’ between 1 March 2020 and 1 September 2021. The ‘Spanish flu’, in contrast, appears only 39 times in this same period, even though this pandemic, which killed between 12 000 and 15 000 Australians after the First World War, provides the more obvious historical comparisons with COVID-19. Time and again, the contemporary pandemic was invoked by Members of Parliament in apocalyptic terms: ‘the worst recession since the Great Depression’; ‘the worst economic shock that we’ve had in essentially 100 years since the Great Depression’; ‘the greatest global depression that we’ve seen since the Great Depression’; ‘the biggest jobs crisis since the Great Depression’; and ‘the biggest problem in the labour market since the Great Depression’.

These comparisons between the Depression and the pandemic rarely involved specific facts and evidence, but detail was not needed. The very words ‘Great Depression’ evoked across all political parties a sense of another existential global crisis over which governments had little control, and for which there was no predictable end. It represented a level of economic disruption, social distress, poverty and unemployment that was politically intolerable. Moreover, the Depression, as a site of memory, embodied values, qualities and behaviours that governments need Australians to emulate in the new pandemic crisis: notably, endurance, resilience and communal support. A Liberal senator from Western Australia, Ben Small, said on 4 August 2021, ‘We have, however, shown great resilience and adaptability in the face of the biggest health crisis since the Spanish flu pandemic and, arguably, the biggest economic calamity since the Great Depression’.¹⁶ Josh Frydenberg, the federal treasurer, meanwhile, told parliament on 6 October 2020, ‘The Great Depression and two world wars did not bring Australia to its knees, and neither will COVID-19’.¹⁷

Commentary about the pandemic outside parliament also slipped into ready comparisons with the Great Depression. Articles in the press featured images of dole queues in the 1930s as well as more recent photographs of empty seats at desolate outdoor dining venues. Unemployment rates of both crises were juxtaposed, to the advantage of the pandemic which failed to fulfil the most gloomy prophecies.¹⁸ Government responses to the pandemic were also compared with those of the Great Depression, as well as to the funding of the Second World War through Victory loans. Anything less than a ‘gargantuan stimulus’, an article in The Conversation argued, ‘runs the risk of a debt-default deflationary spiral of the kind seen in the Great Depression, when the ability of households and businesses to pay their debts decreased with deflation and the resulting defaults led to further deflation’.¹⁹

Lessons from history: The Great Depression as a cultural anchor

Whether such comparisons between the Great Depression and the COVID-19 pandemic were valid or accurate is not of any real consequence. The significance of this invocation of the Great Depression lies in the function it served. Australia’s leaders realised that the Great Depression provided the imaginative context within which the policy responses to the pandemic could be positioned and legitimised. The Great Depression was the greatest economic crisis in Australian history, and so, too, was COVID-19 a ‘once-in a century’ crisis. Radical policy options, which required phenomenal levels of government indebtedness and intervention in the economy, were thus justified. This reminds us that policymaking is not a simple exercise in rational or statistical analysis. Rather, memories of the past that remain dominant in the political culture, and which attest to societal values that have an enduring relevance, make policy innovation possible.