Inside Story

10 June 1931

Never again? The Great Depression changed a generation, writes Erik Eklund, but can we be sure that all the lessons were learnt?

Erik Eklund 20 October 2008 3528 words

Vincent Burgess selling pencils in Brisbane during the Great Depression, around 1932. Detail from a photograph published in the Sunday Truth, held in the John Oxley Library, State Library of Queensland

It was late autumn in 1931 when the Australian state premiers, together with the Labor prime minister, Joseph Scullin, assembled at the Victorian houses of parliament in Melbourne. The Wall Street Crash had happened in 1929 and the effects of the subsequent economic collapse were reverberating around the world. The outcome of the meeting, finalised on 10 June, was to lower government expenditure, reduce pensions, reduce interest payable on government bonds and rein in government debt. In short, this agreement – later known as the Premiers’ Plan – enacted a rapid and determined cut to government spending.

In 1931 “Charlie B.” was living in a small shelter made of kerosene tins and discarded industrial material just outside the industrial town of Port Kembla on the south coast of New South Wales. Out of work since 1929, he had managed to survive with the occasional odd job and whatever he could find around him. The deflationary policies of the Premiers’ Plan were to have a profound effect on his life and on the lives of many thousands of Australians like him.

There was a palpable sense of crisis throughout Australian society. There were increasing numbers of homeless and unemployed. There were growing fears, real and imagined, of social and political breakdown. The Depression transformed the public and private lives of many who lived through it. It shaped their behaviour and attitudes well into the 1940s and beyond. The Premiers’ Plan dominated the political landscape, deepening the economic crisis and shaping the lives of those like Charlie B.

The Depression was triggered by a massive and sudden drop in stock prices on the US stock exchange in October 1929. It also revealed fundamental problems in the Australian economy, including an inexorable decline in commodity prices and overproduction in some industries. From the late nineteenth century most industrialised economies had diversified, moving away from a reliance on agriculture, and had acquired a broader spread of trading partners. The Australian economy, in contrast, remained relatively dependent on its agricultural export trade, especially with the United Kingdom.

As for many other countries, the 1920s were a decade of mixed blessings for Australia. State governments continued to borrow to finance important public works projects, but underlying problems remained. Post-war inflation in 1919 and 1920 was followed by a recession. Unemployment hovered at around 10 per cent during the 1920s. Loan funds from London dried up after 1927, limiting debt-financed public works.

Almost 120,000 jobs were lost from manufacturing industries between 1927 and 1932, with major falls in Victoria and New South Wales. Wool prices dropped steadily from 1925; the wheat price dropped sharply in 1930. Subsequently, the value of Australia’s wool and wheat exports halved from 1929 to 1930, and national income declined by one third. Widespread upheavals in the economy generated social dislocation, social and political conflict and, above all, human suffering. The experience was mind-boggling in its international scale and devastating effects. Official unemployment rates in 1933 peaked at 19 per cent in Canada, 22 per cent in the UK and 25 per cent in the US. As high as they are, however, these figures were probably underestimates. In Australia official unemployment rates peaked in 1933 at 30 per cent, though underemployment and wage cuts for those who remained in work were also important elements of the calamity for working people and their families.

Faced with the emerging crisis from the late 1920s, and overwhelmed by the scale and complexity of the problem, governments tried a range of responses. Tariff barriers were raised, levels of migration were monitored and reduced. Customs excise, the main form of taxation income, was increased. Some governments sought alternative sources of loan monies while others moved to guarantee farm income by setting a guaranteed minimum price on commodities such as wheat. Such strategies were actually grounded in the 1920s, implemented in the desperate hope that somehow the world had not changed as dramatically as it had.

By the end of 1930 a clearer response from the federal government was emerging. The Premiers’ Plan represented a more confident political assertion of a particular fiscal and monetary response to the crisis. This approach focused on the notion that Australia had lived beyond its means and that wages, government spending and prices needed to be controlled. The visit by the Bank of England mission in 1930, headed by Sir Otto Niemeyer, gave great impetus to this view. Niemeyer was a fiscal conservative with grave misgivings about colonial extravagance. He implicitly aligned an imperial sense of morality and duty with the specific economic measures of reduced spending and honouring debt. Furthermore, he appeared to offer the possibility of redemption from the imperial centre. The spectre of defaulted loans, so Prime Minister Scullin believed, was a matter of Australian honour, and Niemeyer, as an English expert, had powerful political and cultural influence in the context of an Australian national sentiment which was still closely aligned with Britishness.

The growing numbers of unemployed understood the implications of these financial policies. In March 1931, when the Western Australian government failed to secure any substantial loan funds at one of the numerous Melbourne meetings, the unemployed gathered outside the Treasury building in Perth. The so-called “Treasury Riot” was a major confrontation between police and protestors, with a number of arrests. This was followed by months of sporadic and occasionally violent protest in the Western Australian capital. Across the nation, some 200,000 men employed on public works projects lost their positions as a result of the cessation of loan money from London.

The dilemma of how the Plan could be sold to the electorate was partially, though not entirely successfully, managed through the slogan “equality of sacrifice.” Prime Minister Scullin and the supporting premiers argued that both pensioners and bondholders should suffer the same cuts. Needless to say, such a slogan under- whelmed the Labor Party faithful, and the ensuing years were some of the most bitter and divided in the party’s history.

Federal and state Labor split in South Australia, Victoria and New South Wales. In the latter state the irrepressible Premier Jack Lang developed a populist and excoriating critique of the Premiers’ Plan. Lang favoured defaulting on the British loans and withheld NSW government payments to London lenders. This debt was serviced by the Commonwealth which believed that it needed to restore financial confidence in Australia and that defaulting on loan repayments was the quickest way to destroy that confidence. The climax to the political crisis in NSW saw Lang dismissed by the Governor, Sir Phillip Game. Another Labor grouping, under Tasmanian Joseph Lyons, joined the conservative opposition, which was reforming itself into a new political force. In December 1931 Lyons won a federal election as leader of the new United Australia Party, and became prime minister.

Criticism of the Premiers’ Plan came not only from disgruntled state parliamentarians and the increasing ranks of the unemployed. Another dissident view, though somewhat milder than Lang’s, was that of the federal treasurer Ted Theodore, who advocated an expansionary response to the crisis, quite the opposite to the “control spending and live within your means” approach. Theodore, a former Queensland state premier, was aware of the developing doctrine of Cambridge economist, John Maynard Keynes (who, ironically, came second in the British civil service examination in 1908, just behind Otto Niemeyer). By the 1930s Keynes was suggesting that a deflationary response would only make the economic decline worse. Theodore did manage to include some proposals for raising further capital within the Plan, and even touted a more ambitious capital-raising exercise, which was ultimately thwarted by the Senate and the Commonwealth Bank board. Theodore’s position, however, was significantly undermined when a royal commission into the sale of state government-owned smelters in Queensland found that Theodore had personally benefited from the sale while he was Queensland premier. Combined with his erratic personal life, the finding helped discredit his more ambitious and unorthodox economic proposals.

The Premiers’ Plan was crucial in crystallising a deflationary, control-spending approach to the Depression, despite Theodore’s attempts to modify the harsher policies. As mainstream political opinion coalesced around the Plan, radical groups on the left and right unleashed a torrent of criticism. The reduction in pensions appeared heartless to those on the left, and the involvement of the Bank of England in the person of Niemeyer was further grist to the mill for Labor and Communist Party critics who alleged a conspiracy to protect finance capital. On the right, as politics lurched from one crisis to another and some saw even the sanctity of private property under threat, groups such as the New Guard and the All for Australia League lost faith in democracy itself and called for the installation of a strong leader who might restore order and control the communist menace.

These fraught and highly polarised debates had a wide-ranging impact in capital cities, regional centres and even in smaller rural towns. In Adelaide the unemployed protested against poor-quality food relief and exploitation by some traders. In Wollongong, street protests were banned by a nervous local council, and “free speech’ marchers were intimidated and arrested by police. In Melbourne, Lloyd Edmonds, then an arts student at the University of Melbourne, recalled long meetings and conferences: “Of course, nobody had a solution, but we certainly didn’t want the Premiers’ Plan. So we had these conferences … It was the most frustrating thing, because no one knew the answer to the depression. We didn’t, but neither did the government. But we still were opposed to cuts in pensions and wages.” “Loyalist” groups, fearful of growing communist influence, made an appearance, and clashes between them, the unemployed and the police became more common. Police were increasingly nervous, sometimes heavy handed, and often biased against the unemployed.

The Premiers’ Plan clamped down on wages and pensions. There was a 10 per cent wage cut for some workers, delivered by the Commonwealth Court of Conciliation and Arbitration in 1931. On the coalfields of NSW and Victoria workers lost between 10 and 20 per cent of their wages. Award rates for single women in industrial employment, already about half of the male basic wage, declined from £2 per week in 1923 to £1.17s by 1933. Such wage cuts came on top of a deterioration of working conditions as the labour movement grew weaker in the context of major industrial defeats in the coal-mining industry, on the waterfront and in the timber industry. Many awards reverted to 48-hour weeks, reversing the progress of the 1920s towards 40-hour weeks. The Plan also restricted the already tight money supply and further reduced public employment. The traditional government response to unemployment in times of economic downturn was to increase public works and thereby absorb many of the underemployed. Instead, the federal government, which had spent over £2 million on public works in 1930, withdrew nearly all of this funding in 1931. State governments maintained some public works projects, though many reverted to “food relief” rather than the provision of “real” work for the unemployed. Food relief was another area of social conflict as the unemployed demanded wages rather than dole coupons.

Deflationary policies, with a strong deadening hand over economic activity, flowed into the private sector. Total federal government outlays declined by more than 10 per cent from 1930 to 1932, a figure for any penny-pinching treasurer to be proud of. By 1931, manufacturing and mining had suffered significant declines. In places like Port Pirie, Queenstown and Port Kembla large numbers of men had been laid off. Decline in mining and manufacturing affected work in the ports and rail yards of capital cities and regional centres alike. Towns where the local commercial sector was dependent on the wages from local industries were particularly hard hit. Tent cities and camp sites mushroomed around their outskirts.

The immediate social effect of this major downturn across public and private employment was the creation of a large class of unemployed men who travelled the country alone (or occasionally with their families) in an increasingly desperate search for work. Favoured destinations were the big cities of Melbourne and Sydney and industrial areas where there was even a slight chance of work. State governments viewed large groups of unemployed men in city areas somewhat fearfully, and moving them to the country was seen as a way to dissipate this perceived threat. A number of states trialed unsustainable and half-hearted schemes to resettle the unemployed on farms. Western Australia offered free railway travel to the South Australian border. In Broken Hill NSW the Barrier Industrial Council declared its books closed to “outsiders” in 1931. Communities generally feared the establishment of tent cities, though in many cases local councils with scarce resources did their best to secure a water supply and sanitary systems for the “Happy Valleys,” “Official Camps” and “Frogs Hollows” that emerged.

The group that was especially hard hit were those in regular employment who had been reasonably secure throughout the 1920s. In these cases the extent of the fall and the sense of a major disruption to established routines of life made adjustment difficult. This group lacked many of the economic and cultural strategies for coping with periods of unemployment or underemployment. In port towns throughout Australia waterside workers enjoyed only punctuated periods of employment with fishing or rabbiting in between to survive. Household budgets were structured around the probability of varying incomes. All members of the household, including children, were mobilised to secure resources, either through casual employment or informal economic activities such as fishing or bartering. For many, the sheer horror of the Great Depression lay in the fact that even respectable, sober and hard-working people could be made destitute.

DO THE economic statistics convey the true breadth of the experience of living through the Great Depression? How might we connect the statistical picture with the realities of economic deprivation and unemployment?

Oral testimony is often used by historians as the qualitative counterpoint to quantitative economic measurement. Australian libraries and archives have extensive holdings on the Depression collected from the 1960s, though oral testimony grows harder to obtain with the inexorable passage of time. What is striking is that memories of those who lived through the Depression tend to minimise the hardship and conflict, focusing instead on stories of “coping,” “getting by” and “getting through.” David Potts, who uses oral history extensively in his book The Myth of the Great Depression, has challenged our understandings of the Depression by focusing on the opportunities that came with unemployment or underemployment, and on stories of great resilience, or examples of people making do and getting by with courage and resourcefulness. Rather than anger or bitterness, this account emphasises adaptability. Potts argues, for example, that the Depression did not radicalise the majority of people. Instead, the Depression precipitated life-changing moments and enabled great generosity among relatives and neighbours and within community networks.

Historians using oral history, however, need to be alive to the contradictions and complexities of memory and language. Often hidden beneath well-rehearsed stories of coping and managing lie stories or indications of alternative experiences and interpretations. Respondents from Port Kembla who spoke of the town “coming together” during the Depression also related stories of some benefiting from the powerlessness and misfortune of others. Others made the general statements about unity in the Depression but revealed in other evidence that they were implicitly referring to smaller, more specific workplace or neighbourhood groupings. Janet McCalman found a similar complexity in the Melbourne suburb of Richmond in her book Struggletown. “The Depression” she writes, “was always tougher for someone else: women claim it was harder for men; men claim it was harder for women. But in the euphemisms, the projections, the evasions and the myths, we can sense the pain and the fear.”

What were the long-term consequences of the Great Depression? The answer to this question partly depends on whether one wishes to focus on the hardship and conflict or on the personal and social resilience of those who survived it. For those who emphasise the hardship and conflict, the Depression revealed deep divisions in Australian society. The veneer of civility was arguably quite thin. When poverty became more widespread, those with some degree of wealth or privilege took concerted action to protect their position. This involved political organisation in the main, but others took more drastic action to organise in a paramilitary way.

Politically, the Depression had far-reaching consequences. For many years the bitter experience of living in canvas tents, moving from one town to another or suffering police brutality or community ostracism was the raw material that fed people’s desire for more fundamental change in the structures of the economy and of governance. If the market could not manage its affairs then perhaps, it was suggested, it should be subject to democratic or political control. The Communist Party of Australia, through one of its front organisations, the Unemployed Workers’ Movement, was a major beneficiary of this disillusionment and anger, maintaining this momentum through to the beginning of the Cold War in 1947. Many militant union organisers and leaders in unions such as the Waterside Workers’ Federation and the Federated Ironworkers’ Association carried this anger through to their organising and political activity in the mid- to late-1930s. In this period, workers with well-organised and militant unions made substantial gains in their pay and conditions.

The Labor Party fell apart, the conservatives reorganised themselves, and both the far right and far left had a short-lived influx of interest and support. The sheer numbers of unemployed overwhelmed most trade unions. Many ceased to function altogether and only recovered from the mid-1930s. The very bonds that cemented the Commonwealth together appeared under threat. Momentum towards secession gathered in Western Australia, as that state tired of being a supplicant to the Commonwealth. Culturally, the Depression left a powerful legacy. It included a generation of Australians who were frugal, saving money and resources “for a rainy day.” They were adept at finding novel ways to reuse and recycle. Such qualities, which seemed out of place in the post-war boom, have more recently returned as characteristics of a more sustainable, less profligate way of life.

THE ADOPTION of the Premiers’ Plan had dramatic consequences. It significantly reduced economic activity in the public and private sectors. Its deflationary approach generated unemployment on a scale not seen in Australia since the 1890s, and produced widespread homelessness and a housing crisis, together with moments of public disorder and protest.

The crucible of Depression unemployment, made worse by the Plan, was a turning point in the lives of many. It was also a turning in national political history, witnessing the emergence of new policy priorities such as full employment and state housing. The spectre of the Depression haunted public policy for decades, and the years of continuing economic growth from 1945 to the early 1970s were a reassuring experience. It is in this search for certainty and security that post-war politics matched the cultural ethos. The long era under Prime Minister Menzies, with steady change underpinned by economic growth, evoked a reassuring stability driven by a desire to escape the chaos of the Depression. It is not known what happened to Charlie B., but the temporary camps, absent services and rough conditions were slowly but surely removed from the urban environment after 1945. Only a shameful remnant of such conditions continued in Indigenous communities.

The Depression looms large because of its effects on the lives of so many ordinary people. It disrupted and curtailed working lives. It made itinerants of men and families. It made beggars out of earners. Money was scarce, living conditions were appalling and, as certainly as any natural disaster, this financial one, along with the political strategies adopted in response to it, shaped the lived experience. It is a “moment” that we can distil within Australian history and historiography.

While historians grapple with its extent and influence, it is still alive to us. As more recent recessions and financial crises from the 1970s onwards have come and gone, many historians, economists and commentators have continued to question whether our political and financial systems have matured to the degree that Great Depressions are no longer possible. The Great Depression still haunts are collective memories with comparisons with the 1930s becoming a stock phrase in reports on the current financial crisis.

At first glance it appears as though the Australian government’s response to the financial crisis of 2008 is very different to the response adopted in 1931. Keynesian economics is back with a $10 billion package of government money. But to what extent is this good fortune rather than ideology speaking? Would the federal government have increased pensions if the federal budget was in deficit? Increased grants to first home owners represent a strong continuation of past policies whereby a massive increase in debt was financed by rising house prices. The move to increase the first home owner assistance can be seen as supporting existing equity in homes as much as helping new buyers. The move to guarantee bank, credit union and building society deposits is far more significant, as is the growing if somewhat nebulous criticism of “extreme capitalism.” So even in contemporary responses we can still see echoes of earlier policies, both the initial reactions which appear to be more focused on system maintenance and continuation, and talk of deeper reform surrounding the dysfunction of speculative capitalism. •