Australia And The Depression

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market during the early years of depression. The fact that Sir Robert Gibson was Chair of the Commonwealth Bank only added to the Governments predicament. Gibson's thoughts on economic policy were conservative, and under existing legislation, he was answerable to no one except the Bank Board, which he dominated.
Consequently, the Government lacked the necessary power to significantly influence to the board in favour of their policies. This lack of means was sorely missed during the crisis in government finance. Australia depended heavily on overseas borrowing for new investment. However, the returns from the investments were not sufficient to satisfy debt repayments and so the government persistently used overdrafts. In the later half of 1929, Australia's external debt position worsened. When the government approached the banks to extend further overdrafts, the banks refused. The banks argued that if sufficient funds could be found to repay the maturing Treasury bills, funds ...

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that an overvalued currency would depress export income further and cause an increase in demand for government assistance. For these reasons, the Scullin Government gave its support to devaluation.

Contrary to this, the banks (including the Commonwealth Bank), were
concerned about the inflationary consequences arising from devaluation. Devaluation was unfairly ruled inflationary due to the money/price relationship and the fact that wage increases were based on the quarterly adjustments in the cost of living. This may represent a lack of theory at the time, although this opinion was held by the Banks and not the government. The discordant relationship between the Scullin ...

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