RDP 2000-04: Keynes and Australia 3. Keynes and the Depression in Australia

For many in Australia, the catastrophe had already come. To the annual meeting of National Mutual a year before – in January 1930 – Keynes had said:^[82]

For significant signs of recovery or of further deterioration it may not be so important today to consider London or New York as to watch Australia, South America, and Asia, and also Central Europe, for these areas are being reduced to very grievous distress by the combined circumstances of the fall in the prices of their chief products and the difficulty of obtaining funds on the international loan market.

In January 1931, Keynes said of this speech, ‘I am sorry that my gloomy prognostications of a year ago have been more than fulfilled’.^[83]

Faced in 1929–1930 with ‘a sudden termination of overseas lending and [a] catastrophic fall in [export] commodity prices’,^[84] Australia embarked on her ‘struggle to avoid default on public interest obligations abroad’.^[85] Australia sought assistance from the Bank of England, which sent to Australia a delegation led by Sir Otto Neimeyer. Inter alia, Niemeyer advised, and an August 1930 conference of Commonwealth and State Ministers agreed upon, the balancing of budgets; unsuccessful efforts towards this involved cuts in public service salaries averaging 10 per cent.^[86] This was a heavily deflationary prescription at a time when national income had fallen dramatically, unemployment was very high and rising, and budgets had been substantially unbalanced by a major drop in tax receipts. Neimeyer was the subject of savage attack, especially from the left wing; the bitter recollection of this representative of international finance dictating deflation to Australia (as many on the left saw it) was an important element in Australia's delay in entering the International Monetary Fund at the end of World War II.^[87]

As is well known, Keynes had come second to Niemeyer in the 1906 British Civil Service exams,^[88] Niemeyer had ‘a long lead’.^[89] He took the Treasury job Keynes would otherwise have had, and Keynes entered the India Office. It has sometimes been wondered what the difference would have been had Keynes beaten Niemeyer, and entered the Treasury.^[90]

It is, of course, an impossible, if tantalizing, ‘if’; it is made especially difficult for Australia because Niemeyer, having transferred from the Treasury in 1927, came to Australia in 1930 for the Bank of England.^[91]

But there is some indication of Keynes's attitude to Australia at the time of the Niemeyer mission: In an answer (dated 21 July 1930) to questions from the British Prime Minister, Ramsay MacDonald, Keynes had suggested ‘means to increase our [i.e. Britain's] favourable foreign balance’. He suggested steps to increase ‘world trade as a whole, in the hope of thereby increasing the absolute amount of our share of it’, and said that ‘there are certain special loans which I should favour as a means of developing trade’. Under this, he wrote:^[92]

I hope that we shall stretch a point if necessary to help Australia out of her difficulties, when Sir O Niemeyer is ready with his report. She has perhaps learnt her lesson. In any case a time when wool and her exports generally are at these disastrous prices is not a time to choose for pressing her too hard. She ought to send us some more gold – say £10,000,000 to £15,000,000 – to help with our problems. Subject to that we ought to meet her necessities.

In a September 1930 article, Keynes mentioned Australia as ‘an outstanding instance’ of governments ‘gravely embarrassed by the fall in the prices of their staple exports’ waiting to borrow at ‘whatever rate lenders demand of them’.^[93] (In September 1931 Keynes suggested as a possible partial solution to the international debt problem that Britain ‘might take shipments of goods, reckoned at more reasonable prices (say 25 per cent higher) than present world prices, from such countries as India, Australia, Canada, Argentina, Germany, etc., the proceeds to be credited against the interest dues of these countries in London’).^[94]

In January 1931, the Australian pound depreciated, and the Commonwealth Arbitration Court cut the basic wage by 10 per cent. The choice of policy response to the slump was clear: (i) the ‘repudiation’ of overseas debt obligations, favoured by the radical left and associated with JT Lang, the Premier of New South Wales, but with no chance of adoption by the Commonwealth; (ii) deflation, with reduction of budget deficits, wage cuts and the like, advocated in conservative political circles, by business, and by most economists; and (iii) moderate expansion, often associated with the Federal Labor Treasurer, EG Theodore.^[95]

In March 1931, Theodore introduced the Fiduciary Notes Bil1 to authorize ‘the printing of up to £18m of Treasury Notes, of which £12m were to be used for public works expenditure for the relief of unemployment and £6m for assistance to the wheat industry’.^[96] In his Second Reading speech, Theodore quoted Keynes. First, to repel calls for further wage cuts, he quoted a 1930 article by Keynes arguing that ‘if wages are cut all round, the purchasing power of the community as a whole is reduced by the same amount as the reduction of costs; and … no one is further forward’.^[97] Secondly, Theodore quoted Keynes to support his claim that ‘the international bankers of the world are largely responsible for what has happened to the monetary policy of the world in the last two years … They were the originating cause of the depression and the economic disaster that has overtaken the world’.^[98] Theodore said:^[99]

Mr JM Keynes' book The Economic Consequences of Mr Churchill, published in 1929, contains what I regard as an extraordinarily prophetic remark. It is as follows:–

The Bank of England has manoeuvred its assets and liabilities in such a way as to reduce the amount of cash available to the clearing banks as a basis for credit. This last is the essential instrument of credit restriction. … Credit restriction is an incredibly powerful instrument … especially in circumstances where the opposite course is called for. The policy of deliberately intensifying unemployment with a view to forcing wage reductions is already partly in force.

It was, therefore, already partly in force in England in 1929, and I ask whether that fact does not furnish an explanation of the policy and stand adopted by the Australian banks in Australia last year and this year.

However, The Economic Consequences of Mr Churchill was published in July 1925, not 1929.^[100] This pamphlet argued that, in restoring sterling to gold at its pre-war parity, the Chancellor of the Exchequer, Winston Churchill, had effectively revalued it by 10 per cent, with necessarily adverse consequences. Keynes argued that, though temporary measures gave ‘a breathing space’, the Bank of England would seek ‘to effect what are euphemistically called “the fundamental adjustments”’. This meant credit restriction, which meant deliberately ‘intensifying unemployment without limit, until the workers are ready to accept the necessary reduction of money wages under the pressure of hard facts.’^[101]

Even as a comment on the 1925, not 1929, policies of the Bank of England, Keynes's comments were somewhat milder than Theodore's excerpts might suggest. Besides deleting Keynes's references to three other, though lesser, credit restriction measures already taken, Theodore deleted Keynes's discussion of the extent of the credit restriction in force; it was this:^[102]

Failing direct information, the best reflection of the amount of this restriction is to be found in the deposits of the clearing banks. The tendency of these to fall indicates some significant degree of restriction. Owing, however, to seasonal fluctuations and to the artificial character of the end-June returns, it is not yet possible to estimate with accuracy how much restriction has taken place in the last three months. So far as one can judge, the amount of direct restriction is not yet considerable. But no one can say how much more restriction may become necessary if we continue on our present lines.

Nevertheless, even these limited measures are responsible, in my opinion, for an important part of the recent intensification of unemployment.

From Keynes's next sentence – ‘Credit restriction is an incredibly powerful instrument, and even a little of it goes a long way – especially in circumstances where the opposite course is called for.’ – Theodore removed Keynes's somewhat softening words ‘and even a little of it goes a long way’.

It is certainly true that, for example, in 1930 Keynes wrote that ‘an important cause of existing unemployment is to be found in the fact that world conditions in combination with the requirements of the gold standard have enforced on the Bank of England in recent years a credit policy which has kept the volume of domestic investment below what it would otherwise have been’.^[103] But Keynes did not blame the Bank of England for this. He believed Britain should stay on the gold standard because this was necessary for that ‘full confidence in London’ needed if Britain were to provide leadership in ‘an international cure’ to the ‘international slump’.^[104] But, as Keynes put it, ‘the difficulty is, of course, that the Bank of England cannot, under gold-standard limitations, move far in [the] direction [of cheaper credit], unless other central banks are doing the same’;^[105] ‘the maintenance of the gold standard keeps a country's investment policy and its current rates of interest somewhat rigidly linked to those prevailing in the other gold standard countries, since any considerable departure from the policies pursued elsewhere will lead to a loss of gold’.^[106] It was for this reason that Keynes advocated ‘a concerted policy between the leading central banks of the world’^[107] and, in March 1931, ‘the introduction of a substantial revenue tariff’ to neutralise the dangers of expansionary policies within Britain itself.^[108]

Presumably because Keynes's bombshell support for tariffs had just become public, an opposition Member interjected during Theodore's speech: ‘Mr Keynes has changed his fiscal ideas’.^[109] This exchange ensued:^[110]

Mr Theodore. – Mr. Keynes is regarded by everyone who has any knowedge of this subject as an authority in the banking and financial circles of England and the Continent, and as one of the best guides upon economic doctrine, economic necessities and the consequences of economic policies.

Mr White. – But the honourable members knows that he has changed his fiscal ideas.

Mr Theodore. – If he has, he has not changed his ideas upon economic problems. His most recent work – A Treatise on Money – is accepted as a text book that will stand for fifty years as a guide to the intellects of the nation on this subject.

Of course, over fifty years later, the Treatise stands and is studied as an important stepping-stone from ‘classical’ economics to the ‘Keynesian’ General Theory. Theodore suggested that it (and other authorities he cited) represented ‘an endorsement of the ideas that have actuated this Government in bringing forward its [fiduciary issue] proposal’^[111] (which was defeated in the Senate.)

In reviewing the Treatise in the Economic Record in November 1931, EC Dyason (‘a leading exponent of note issue expansion’)^[112] said it was ‘destined … to influence political and economic thought as powerfully in our own times as did the Wealth of Nations that of an earlier day’, and that Keynes was ‘likely to become an oracle’.^[113] Dyason said that Keynes's analysis, applied to Australia, showed that ‘our money, for long enough, has been predominantly fiduciary’, and would eliminate ‘the crude idea that the stability of the note issue is in some mysterious manner preserved by a minimum gold ratio of 25 per cent, but not by one of 10 per cent’;^[114] a table in the Treatise showed that there were gold reserves against 25 per cent of the Australian note issue.^[115] Dyason's review stressed the relevance of the Treatise to Australia.

Theodore's expansionist approach gave way to the ‘sound finance’ orthodoxy of the Premiers' Plan of June 1931. The plan comprised major cuts in government spending, income and sales tax increases, and, to ‘spread the loss’, the reduction of interest rates.^[116] As E Ronald Walker wrote in 1933 of early 1931 federal-state financial deliberations aimed at balancing budgets:^[117]

While, by balancing Budgets, unemployment would not automatically or quickly diminish, it was necessary to restore confidence in the public finances before reduction of costs could be expected to produce any improvement. Mr. Keynes has not yet gained wide acceptance of the opposite view – namely, that Government deficits are a useful method of absorbing the excess of private savings over investment: the Australian experts feared that these deficits could only be financed by such an expansion of bank credit as might lead to uncontrolled currency inflation.

Despite a flirtation by the Melbourne economists, Copland, Dyason and Giblin, with an expansionist plan in September 1930,^[118] a joint statement by economists at the Australian Association for the Advancement of Science Conference in January 1931 urged government expenditure cuts and balanced budgets.^[119] Subsequently, the small agroup of Australian economists jointly supported what they regarded as ‘spreading the burden’ through deflationary policies;^[120] indeed, a report by a committee of Professors Copland, Giblin, Shann and Melville in May 1931 helped lay the basis for the Premiers' Plan.^[121] In 1950, Copland described the Premiers' Plan as ‘a middle course between deflation and inflation’, the alternative being the ‘purely deflationary orthodoxy of Sir Otto Niemeyer, and stressed that the economists supported depreciation of the currency, ‘spreading the loss’ of national income through cuts in interest and rent, and some monetary expansion. But Copland went on:^[122]

The principal mistake we made was perhaps in not deviating enough from the deflationist line, though in this matter it is easy to be wise after the event and to ignore the very powerful psychological forces working in favour of deflation at the time.... [T]he mistake was made of not recognizing clearly enough that government activities need[ed] to expand tremendously to offset the fall in private spending.

Condemnation of the Premiers' Plan as inappropriate because it was contractionary appears to be the ‘conventional wisdom’.^[123] This ‘conventional wisdom’ may be Keynesian, but it was not the view of Keynes himself at the time.^[124]

In March 1932, Prime Minister Lyons asked a committee of economists under the Adelaide businessman, Sir Wallace Bruce, to prepare ‘a preliminary survey of the economic problem’. It comprised another businessman, GS Colman; LG Melville, Economist for the Commonwealth Bank; and Professors Giblin, Mills and Shann. Their report was based on the principle that ‘the restoration of employment as opposed to temporary stimulants, is to be found in bringing into harmony the costs and prices of export industry’, through cutting costs and, through depreciation, raising prices.^[125]

The report^[126] recommended ‘that budget deficits for 1932–33 should not exceed £12,000,000’ when ‘preliminary figures’ indicated they ‘may reach £22,000,000, unless all Governments take determined action to reduce them’; that, as ‘the reduction of real wages has been very partial’, ‘all wage-fixing authorities [should] complete the reduction of real wages by 10 per cent below the level of 1928’; cautious public works programmes to substitute employment for ‘sustenance’, with loan money spent on ‘public works capable of earning interest’ and governments loans to private enterprises for capital expenditure able ‘to earn interest’.

Keynes commented on this report in an article, written in mid-April 1932, and published in the Melbourne Herald on 27 June.^[127] Having said that ‘it is a rash thing to write from a great distance on a matter which demands practical judgment more than theory’, Keynes wrote:^[128]

I sympathise intensely with the general method of approach which underlies the new proposals of the economists and Under-Treasurers. I am sure that the Premiers' Plan last year saved the economic structure of Australia. I am not prepared to dispute that another dose of the same medicine may be necessary. But there are some aspects of the Experts' Report which cause me hesitation. I am fearful lest a degree of readjustment should be attempted which is impracticable in the environment of present world conditions.

Keynes argued that if every country were ‘to attempt to solve’ their problem ‘by competitive wage reductions and competitive currency depreciations, no one would be better off’. He said:

… a prudent country will lay its plans for orderly reconstruction on the assumption of a much higher world price level than the present, because, unless this assumption is realised, so much else will happen, so many other things will be broken, and the whole structure of national and international indebtedness will have collapsed so completely that its pains will have been wasted.

If, therefore, I were an Australian economist advising Mr Lyons today, … I should not press for heroic measures. It is a time to chastise gently. Moreover I should have sufficient confidence to take this line, precisely because Australia has done so much already and has been relatively so successful in her programme of necessary readjustment – if only, in spite of disappointment, she could, by comparison with the state of affairs of others, know it! There is more chance of improving the profitableness of business by fostering enterprise and by such measures as public works than by a further pressure on money wages or a further forcing of exports.

On wage cuts, Keynes said this:

I understand that the reductions of wages so far effected have been unequal. It is of the essence of what has been happening in Australia that there should be equality of sacrifice, and it would seem obvious that New South Wales should be brought into line with the rest of the country. Indeed this must be in her own interest if she is not to suffer more than her share of unemployment. But … [a]part from [such] local anomalies, I do not believe that a further general cut in money wages could do anything which a further exchange depreciation could not do better.

Keynes was sceptical of the benefits of further depreciation:

… I doubt if I should alter the exchange unless either the Australian banks and financial institutions were to tell me that it would make them feel more comfortable and more willing to expand credit, or the proposal was put forward as a substitute for tariffs. … For the aggravation of the existing tariff by the exchange depreciation being superimposed on it, is probably the principal cause of those remaining maladjustments which are purely Australian and not just a reflection of world conditions. The tariff should be reduced in proportion to the depreciation of the exchange.

In September 1931 Keynes had written in New Statesman and Nation of ‘the great primary producers of South America and Australia unable to borrow and unable to buy, … endeavouring to balance their international accounts by restricting their imports’; this, Keynes lamented, was ‘perpetuating the slump in the manufacturing countries.^[129] In Australia, tariffs had been raised higher and higher from April 1930.^[130] Keynes's 1932 Melbourne Herald article expressed ‘complete agreement’ with what he called the Wallace Bruce Committee's ‘proposed loan for relief work’, which puts rather too definitely a more nebulous hope of the Committee. He also supported reducing ‘the Budget deficits to the figure allowed by the experts’.

Keynes had this to say on ‘Australia's credit in London’:

I feel most strongly that it is immensely worth while to foster it. I believe that Australia has heavily over-borrowed in the past and I have often advised that her securities be avoided. But I do not therefore conclude that the days of Australia's overseas borrowing are over. In my opinion the intrinsic quality of Australia's credit though still very sensitive to passing events, relatively to that of other borrowers is higher today, in spite of Mr Lang, than it has been for several years. … I believe that Australian credit is rising rapidly in the estimation of the London market. Australia's heroic measures to fulfil her bond may have been apprehended in England somewhat slowly, but they have not escaped notice.

Keynes believed that ‘it may not be too long before this has a practical importance’:

… the best contribution towards world recovery which London can make will be the earliest possible resumption of her position as an overseas lender and the extension of a helping hand to those debtor countries who have shown that they deserve it. And why should not Australia be one of the first of these? It lies within her power.

That article was based on cabled reports of the Wallace Bruce Committee report. On reading the full text some weeks later Keynes wrote to CL Baillieu, an Australian businessman,^[131] that ‘if I had had the full text before me, I should have amplified my article in certain respects, but I don't know that I should have appreciably modified its general tendency’. He thought the report ‘notably weak’ in the imprecision and lack of substantiation of ‘the hypothesis that export costs are 20 per cent above export prices’. He thought ‘more strongly than before that the committee is inclined to be too drastic and is aiming at adjustments which are humanly impossible for Australia in the existing environment of the world’; but taking a ‘milder … reading of the report’, he thought that ‘while their general approach to the problem seems to me rather frightening, their actual proposals are mild and reasonable enough’.

Shann and Copland in 1933 quoted Keynes as having ‘us raise loans … for relief works, “expand internal bank credit and stimulate capital expenditure as much as courage and prudence allow”’.^[132] They responded:

… we are already doing all the things Mr Keynes recommends ‘as much as courage and prudence allows’. But they form parts of a policy the central principle of which is and must be the restoration of balanced budgets as the chief test of our success in retaining economic control.

Notwithstanding Keynes's greater inclination to expansionary policies than Australian economists and governments favoured, his was a more cautious approach than the later ‘Keynesian’ conventional wisdom would have wanted. Most striking is his statement that ‘the Premiers' Plan … saved the economic structure of Australia’.

This cannot justly be deprecated by claiming Keynes was writing under the influence of or as the agent of Australia's creditors. His article was explicitly from the position Keynes would take ‘if … I were an Australian economist advising Mr Lyons’. There is no basis in the article or in Keynes's other writings or actions to doubt the sincerity of this. Keynes was not slow to criticise the British Government, the Bank of England, or private interests; it is not obvious why his attitude to Australia should be deflected by concern for their interests or deference to them. Certainly there is no evidence that his public statements were influenced by private interests; given that National Mutual, of which he was Chairman, had ‘for many years past’, in line with Keynes's approach, ‘held no securities of the Australian Government or States’,^[133] it is not clear that the private interests in his purview required Australian austerity. Indeed, Australian default would have vindicated Keynes's earlier suspicions of Australian borrowings.

Nor can Keynes's support for the Premiers' Plan be dismissed as ‘pre-Keynesian’. Keynes had already on many occasions advocated public works to promote employment;^[134] he did so in the very article in which he (effectively) endorsed the Premiers' Plan.^[135] And, at least with the publication of the Treatise in 1930, if not earlier, the term ‘Keynesian’ was in use; Dyason used it at least three times in his Economic Record review of the Treatise,^[136] and in May 1932 FRE Mauldon cited Paul Douglas as approving ‘the Keynesian diagnosis of disparity in the pace of investment and saving’.^[137]

Keynes's attitude to the Premiers' Plan, and his refusal in April 1932 ‘to dispute that another dose of the same medicine may be necessary;^[138] is better understood in the light of his lecture to the International Economic Society in Hamburg on 8 January 1932:^[139]

… today the primary problem is how to avoid a far-reaching financial crisis. There is now no possibility of reaching a normal level of production at any reasonably early date. Our efforts are directed towards the attainment of more limited hopes. Can we prevent an almost complete collapse of the financial structure of modern capitalism?
… no one is likely to dispute that the avoidance of financial collapse, rather than the stimulation of industrial activity, is now the front-rank problem. The restoration of industry must come second in order of time.

Furthermore, Keynes was conscious of the adverse effects on confidence of expansionary policies: in May 1932, only a few weeks after writing his Melbourne Herald article, Keynes said to Colin Clark and Joan Robinson of the beneficial effects of budgetary deficits – ‘But how … could the physician prescribe when the patient vomited as soon as he received the medicine?’^[140] The pressures in Australia for ‘sound finance’ were very great.

In his Hamburg lecture Keynes stressed the benefits of Britain's abandoning the gold standard in September 1931, and in this context said that Australia's ‘economic and financial conditions may have turned the corner in the last three months’.^[141] In November 1931 Keynes said ‘Australia has gone farther off [the gold standard] than we have’.^[142] At various times in 1931 he suggested consideration of a new currency system based on the Empire.^[143] In September 1933 Keynes wrote that ‘the remarkable recovery of Australia could not have occurred but for our devaluation of gold two years ago’.^[144]

In January 1933, in a ‘Memorandum on Sterling Exchange’, Keynes wrote of ‘the improvement of … Australian … balances in London’,^[145] and sounded an optimistic note about the Australian economy.^[146] In an article in the Economic Journal in September 1932, he had argued that loans floated by Dominions in London would do more to promote international trade than, say, lending to ‘the distressed countries of Europe’.^[147]

The determination of the Anglo-Australian exchange rate was the responsibility of the Commonwealth Bank. In 1932 there was much pressure for further devaluation, while the Chairman of the Bank Board, Sir Robert Gibson, favoured movement – in the opposite direction – towards re-establishing parity with sterling.^[148] Gibson's attempts in September–October 1932 to have the Board begin the move to parity came to nothing – not least, it seems, because the Bank of England made clear that it had ‘no objection to the Australian exchange rate fluctuating in accordance with internal conditions’.^[149] The issue was not reopened until a Board meeting in October 1933, where again the Board ‘decided not to alter the rate for the present’.^[150]

At that meeting, the Board had before it ‘Notes Made in London, October, 1932’ by Melville, detailing the attitudes of various prominent financial authorities to Australia's exchange policy. The document began (somewhat audaciously, considering Sir Robert Gibson's opinion):^[151]

London opinion is greatly divided on the matter of the Australian rate of exchange. Beyond saying that well informed people insist that we should not attempt to restore the old parity with sterling it is impossible to give any general view. All that is possible is to suggest the attitude of various individuals whose opinions seem worth recording.

Mr JM Keynes thinks that the rate of exchange should be altered only in accordance with economic conditions in Australia. He is dubious about any further depreciation of the Australian pound. It might result in a fall in the sterling prices of our exports. He does not think the pound should be appreciated even if commodity prices rise. Any unreasonable profits thereby given to exporters could be removed by raising wages and thus increasing costs. He considers this to be better than removing unreasonable profits by appreciating the Australian pound.

The paper continued:

Mr RG Hawtrey, economic adviser to the British Treasury, considers that the rate of exchange should be altered to accord with economic conditions in Australia. Neither Keynes nor Hawtrey considers that, in any alteration of the exchange rate, we should pay attention to the effects of the alteration on other countries. Sir Basil Blackett agrees generally with Keynes but thinks we should pay some attention to the effect of any alteration on other countries. Sir Henry Strakosch agrees generally with Sir Basil Blackett.

So the ‘notes’ went on. Schedvin says that ‘these views appear to have influenced Melville in favour of a reasonably flexible rate. In a memorandum prepared at the beginning of the 1933–34 export season, he expressed the opinion that the rate should rise or fall in accordance with internal conditions’; and his advice against exchange appreciation was followed.^[152]

Keynes's views received attention in Australia in other contexts. For example, in May 1931, AC Davidson, the General Manager of the Bank of New South Wales, suggested to the Victorian branch of the Economic Society that Keynes supported the autonomy of central banks from government control, and that his ‘analysis … supports … both government economy and a … reduction of interest rates’;^[153] only on the last point (reduction of interest rates) is it clear that Davidson was right about Keynes.

The views of the Macmillan Committee on Finance and Industry, in which Keynes had great influence, were sometimes quoted in argument.^[154] Keynes's Treatise on Money (1930) received considerable, though not entirely uncritical, attention from Australian economists, as shown in references to it in the Economic Record.^[155] Giblin later wrote that it was Keynes's The Means to Prosperity of March 1933 that ‘popularized the idea’ of ‘credit expansion in a depression’.^[156] Giblin's review of The Means to Prosperity in the Economic Record^[157] praised the ‘simplicity, clearness and persuasiveness’ of Keynes's exposition of ‘an ordered plan for world recovery’, and rather overstates the parallel between Keynes's plan and ‘the successful steps that have been taken in Australia – piece-meal, sometimes almost accidentally, without any general acceptance of principle – in the effort to keep afloat in the economic maelstrom’.

In 1932, in reviewing a volume of lectures given at the University of Chicago, including by Keynes, FRE Mauldon had written (Shann and Copland 1932):^[158]

To Mr Keynes, with whose monetary theories we are becoming increasingly familiar, the most fruitful course to follow [to deal with the depression] is action to ‘bring down the long-term rate of interest at a pace appropriate to the underlying facts’. Yet he confesses himself to be pessimistic about an early return to normal prosperity, for the reason that it may be extremely difficult both to restore confidence adequately and to reduce interest rates adequately.

It was thus into an Australian economics profession reasonably familiar with the policy prescriptions Keynes championed that the General Theory came early in 1936. This is well evident in an article by E Ronald Walker of Sydney University in the Economic Record in December 1933; Walker concluded by contrasting the policy prescriptions of Hayek and Keynes:^[159]

… Professor Hayek is strongly opposed to all measures calculated to expand consumers' demand during depression, such as ‘reflation’, or public works paid for out of bank credit … Yet Mr Keynes's remedy is to check savings and stimulate expenditure.

Walker, recently returned from Cambridge, where he had sat at the feet of the master (and written on Australia in the World Depression)^[160], supported Keynes's approach, and found Hayek's theory – ‘not relevant to the problem of recovery from a slump’.^[161]