Inside Story

Postwar boomer

Robert Menzies’s name is synonomous with a long period of stability and prosperity. Does the legend match the facts?

Peter Browne 18 January 2016 5031 words

Contradictions: Sir Robert Menzies at his final press conference on 20 January 1966. British Movietone

Australian politics had already turned on its axis by the time Sir Robert Menzies’s black Bentley pulled up in front of Government House on the afternoon of 20 January 1966. That morning, Menzies had released a short statement announcing his retirement as prime minister. Sixteen years after taking office in December 1949 — years of rapid population growth, an expanding economy and an unemployment rate below 2 per cent — he became the first Australian PM to leave office at a time of his own choosing.

It wasn’t the first time Menzies had made that drive across Canberra. In 1941, at the end of his first (and much shorter) prime ministership, he drove to Yarralumla to tell another governor-general, Lord Gowrie, that he no longer had the support of his own party room. It was only a temporary setback: having been rejected as too abrasive and high-handed by his colleagues in the disintegrating United Australia Party, he set about merging no fewer than fourteen non-Labor organisations into a new political force. The trajectory wasn’t always smooth — the non-Labor vote barely rose at the 1946 election — but in 1949 the new Liberal–Country Party Coalition took office and the Menzies era, as it would eventually be known, had begun.

Not long before Menzies returned to the prime ministership, the journalist Warren Denning made a compelling analysis of this brilliant but not widely loved politician in an unpublished biographical essay. Denning had seen Menzies close up since his own return to Canberra as an Australian United Press correspondent in the late 1930s. Although he favoured the Labor side of politics, his portrait of Menzies pinpoints the contradictions within the man who remains Australia’s longest-serving prime minister.

“The essential difficulty in interpreting Mr Menzies as a personality,” Denning wrote, “is that there were several natures within the one man, natures which were contradictory and sometimes mutually cancelling.” Written in the past tense, as if Menzies were unlikely ever to lead again, Denning’s account reveals a temperament that didn’t fundamentally change over the next two decades:

There was, first of all, the Mr Menzies of high attainment and ripe legend. To this Mr Menzies belongs his redoubtable scholastic triumphs; his eminence at the Bar; his standing as a constitutionalist; his recognition as a fine speaker in all the formal phases of his career; his leadership of government and opposition; his hypothecations of the liberal conception of social life.

Then there was the Bohemian Mr Menzies, the liker of good as against elevated talk, of good wine, good food; the Mr Menzies who did not resent being admired by attractive women; the artist in good manners, in charm, in the elegant style; the Mr Menzies who inspired the thoughts that he belonged in spirit to a more exquisite century and setting. This was not the first Mr Menzies relaxing; had it been on that level, the second Mr Menzies may have done the first Mr Menzies no harm. But it was really another nature, at war with the conventional stature of the first.

Somewhere else there was a Peter Pan Mr Menzies, the faint suggestion of an adolescent not grown up. From this Mr Menzies there came the bitter criticism of the people who did not understand him, would not work with him, were not loyal to him. In this nature he was entirely egoistic, seeing himself as the sun in a universe of pallid moons…

Finally, there was a curious little pucklike Mr Menzies, an elfin creature of mischief and malice, never able to resist sticking pins in the world’s pants, always under temptation to twist the noses of pompous people, or to dance on the prides, the pretensions, and the illusions of nearly everybody who crossed his path.

“All these different natures of Mr Menzies,” said Denning, were combined “in the person of a massive-headed, quick-eyed, wide-shouldered, tall, burly, and slightly corpulent man, who had on his hands the well-nigh impossible task of reconciling them within the personality of one individual who had committed himself to high, responsible, and public paths.”

The full panoply of Menzies’s natures was on display when he gave a nationally televised press conference a few hours after he tendered his resignation to the governor-general on 20 January 1966. Answering questions from the press gallery correspondents, Menzies listed his most lasting achievements (creating the Liberal Party, maintaining a “fruitful and constant” alliance with the Country Party, building closer ties with the United States, lifting funding for education); defended the government’s spending on the development of Canberra; and joked maliciously about labour minister Billy McMahon’s late decision to marry.

As a cloud of cigarette smoke gathered above the rows of journalists, Menzies responded elusively to enquiries about what he planned to do in his retirement, and briskly defended the government’s decision to join the United States in fighting the North Vietnamese. Then came a question that was intended to go to the heart of his government’s economic achievements, or perhaps the lack of them. As Menzies pointed out, the question’s phrasing was confusing, but the shrewd old warhorse knew exactly what the questioner was getting at.

Journalist: Would you like to comment on the opinion that you rode the wave during your term rather than controlled it — that you subscribe to the tiger’s back theory rather than the Australian quarry theory?

Menzies: Well, I find that question somewhat incoherent, but fascinating. If you’re asking me whether I’ve been a good surfer [pauses for laughter] I can say no, the only time I ever stood in the surf on a Sydney beach I was hit by a dumper and had to go and have my face attended to afterwards.

Menzies and the restless backbench

In fact, a debate about Menzies’s economic policies — about the best way to surf the postwar wave of prosperity while keeping away from the dumpers — had been going on within the government almost since the day it took office in 1949, and on several occasions had threatened to break into open warfare.

Despite his reference at the press conference to “the most loyal service” he’d had from people “in politics, in parliament, in cabinet,” a group of Liberal MPs had always held quite different views about how, and how much, governments should intervene in the economy — especially in banking, industrial relations, the airlines and taxation. Emblematic of the divide was Menzies’s decision to retain in influential positions many of the senior officials appointed by his Labor predecessors. For the rebellious MPs and their backers (often in the finance industry), the actions of this group of public servants recalled the worst excesses of the vanquished Labor government.

Geography was also a factor. Menzies ran a government whose spiritual heartland was the comfortable (and overwhelmingly Protestant) eastern suburbs of Melbourne, where old money set the tone. Sydney Liberals in particular were never happy with the extent of Melbourne control, especially given the relative sizes of the two cities and their very different political traditions. Queenslanders weren’t always cooperative either: back when the Liberal Party was being formed in the mid 1940s, the state’s largest non-Labor party had resisted joining; a decade and a half later, when Menzies almost lost the 1961 election, he put part of the blame on a “pernicious campaign” by Queensland Coalition MPs who were convinced the state was neglected by Canberra.

Offsetting these differences was the fact that Menzies was a consummate election winner. His focus on national development, fuelled by a large-scale immigration program inherited from Labor, was popular and proved broadly sustainable. But the uneasy peace within the party was also a product of the system of near-autocratic control built into the Liberal Party’s structure. Although the party drew its funding and unpaid campaign labour force from a large group of individual members, the parliamentary leadership was protected by a decentralised structure and strictly limited opportunities for members to influence policies. It’s no great exaggeration to say that the party was a support group for a largely autonomous parliamentary leadership, and its leader in particular.

But the dissent simmered. In May 1952, for instance, the Sydney Morning Herald’s Canberra correspondent reported that Menzies, about to leave on an overseas trip, had asked backbenchers to “go easy” on treasurer Arthur Fadden, who’d been receiving most of the blame for what they saw as the government’s shortcomings. At a party meeting over the previous long weekend the rebels had criticised Menzies and his ministers “without much inhibition” and now had “new crusades in mind.”

One of those crusades was a rollback of the Chifley government’s 1945 Banking Act, which private bankers believed was choking their profitability. The backbenchers had reason to be optimistic: Chifley’s attempts to tighten controls over banking were widely seen as having contributed significantly to Labor’s defeat in 1949. Menzies had made small changes to the act soon after taking government, but the banks and their supporters in parliament wanted more.

In 1952, while that debate was still going on, voters were experiencing the fallout from the first of the “boom and bust” episodes that would be a hallmark of the Menzies era. The boom was sparked by the jump in prices for wool and other major exports after war broke out in Korea in mid 1950; the bust came after the government, with wages and prices rising alarmingly, tightened the screws in September 1951. Even some of Menzies’s strongest supporters were aghast. The Sydney Morning Herald attacked a budget it called the “offspring of an unholy alliance between an improvident government and a set of self-opinionated bureaucratic planners.” (As John Douglas Pringle, who became editor of the Herald the following year, drily observed, the paper seemed to regard the volume of its classified ads “as the best — indeed the only — test of the state of the nation.”) The relationship between the Herald and the prime minister never recovered.

Although the economy improved, the pressure on Menzies didn’t abate. “Again and again in the past two years pressure groups in industry, in commerce and in the trade unions have all but beaten Menzies,” wrote his press secretary, Stewart Cockburn, in early 1954. “Again and again Menzies has stiffened his colleagues to resistance in what he believed was the proper cause.”

Menzies might generally have prevailed among his ministers, but the electorate was ambivalent. When the votes were counted on 29 May 1954, Labor had won 50 per cent of the primary vote and nearly 51 per cent of the two-party-preferred vote, confirming the widely held perception that the Coalition was treading water at best. Yet Menzies managed to hang on, the beneficiary of advantageous electoral boundaries and the defection to Australia in April of Soviet diplomats Vladimir and Evdokia Petrov, who were believed to have brought information damaging to Labor. With a little less luck, the Menzies era could have been stopped in its tracks after less than five years.

The 1954 result set in train a series of events that helped keep Labor out of power for the next eighteen years. Its stunned leader, H.V. Evatt, blamed the loss on two factors — the Petrov defection, which he believed Menzies had engineered, and the white-anting of his leadership by “traitorous” right-wing Labor MPs, mainly in Victoria, who were gripped by a fear of communists in the union movement. Evatt’s mental health undoubtedly suffered: John Douglas Pringle was “appalled” by the deterioration in Evatt’s state of mind when they lunched not long after the election.

Evatt remained Labor leader for another six years, during which time the party split disastrously. The rebels created the fiercely anti-communist and socially conservative Democratic Labor Party, which backed Menzies, and Labor lost two more elections. It was a period of intense bitterness in federal parliament: although Menzies had described his relationship with Evatt’s predecessor, Ben Chifley, as a friendship, he had made it clear from the start that he detested his latest Labor opponent.

May 1956 found the government in the doldrums and backbenchers again in a rebellious mood following efforts to dampen another boom. “The division and strife in the parliamentary Labor Party have tended to obscure a resurgence of restiveness and a critical spirit among the backbenchers of the Liberal Party which could embarrass the government and might ultimately result in cabinet changes,” reported the Age on 9 May 1956. Still, the paper’s Canberra correspondent added, “Mr Menzies is firmly ensconced as prime minister, and is in a far better position to deal strongly with any minister he may choose to dismiss than he was in the first four years of office.”

Then, later in the year, Menzies threw himself into an international crisis that would significantly damage his reputation. The Egyptian government’s unexpected decision to nationalise the Suez Canal, announced while Menzies was in Washington, piqued the interest of an Australian prime minister who had played a high-profile role in international affairs since the late 1930s. He travelled first to London, where his views matched those of the British government, and then to Cairo, where they failed to accord with those of Egypt’s president, Gamal Nasser.

Menzies’s mission, undertaken despite warnings from the United States and many of his own advisers, was a failure. Israel, Britain and France invaded Egypt, also against the wishes of the United States, and the conflict ended with Britain’s standing having taken a battering. Back in Australia, reports his biographer Allan Martin, Menzies succumbed to a bout of depression, his mood not helped by news that a dissident group in Melbourne was swinging behind a possible challenge for the prime ministership by an old rival, Dick Casey.

That bid didn’t eventuate, but feelings were still strong north of the Murray. In early 1958 the Bulletin, which broadly supported Menzies, lamented how little impact MPs from New South Wales were having within the government — not because of the leader’s autocratic ways in this case, but as a result of “deaths, overseas appointments and shockingly bad selection of candidates,” which had combined to bring about a “spectacular decline of the NSW Liberal Party as a power in the federal parliament.” The best-known NSW Liberal MPs were two “cheerful rebels,” Bill Wentworth and Roy Wheeler, who had no chance of promotion under Menzies or any other likely leader. A third NSW Liberal with a public profile, the economist Les Bury, had recently attracted a blistering attack from Arthur Fadden.

Dissent was in the news again after the government’s convincing election win later that year. It was fuelled, according to the Canberra correspondent for the fortnightly Nation magazine, by “the increasing number of disgruntled backbenchers who must realise by now that they have no hope of promotion.” While any early disintegration of the government was most unlikely, “the elements are there,” the correspondent added,

and Mr Menzies’s increasing aloofness and the complete confidence engendered by his electoral triumph will do much to fan the present scattered areas of discontent. His senior ministers are not popular with the rank and file. They may be first to feel the heat, long before the prime minister begins to realise that things are not as calm as they seem from the icy heights on which he dwells.

The pattern continued, with any sign of prime ministerial ill health or fresh rumours about Evatt’s future triggering overheated conjecture. All of which raised the awkward question of who would be Menzies’s successor. The NSW branch finally came up with Garfield Barwick, a Sydney lawyer who seemed a strong contender for the frontbench and the leadership, but he failed to make the right kind of impact in parliament. (After steering through progressive changes in divorce laws and company regulation with Menzies’s support, Barwick left for the High Court in 1964.)

Of the other two contenders, both from Victoria, John McEwen’s route to the Lodge was complicated by the fact that he led the junior Coalition party, the Country Party. It was the third man, Harold Holt, whom Menzies seemed to be grooming for the job. For the NSW party, the fact that Holt was from Melbourne — not to mention his generally conciliatory approach to unions during his time as labour minister — provided yet more grounds for discontent.

Menzies and the economists

Like most parties taking power — and arguably most successful governments — Menzies’s Liberals broke less decisively with the past than their campaign rhetoric had led voters to expect. Looking back at the end of the era, the journalist Maxwell Newton, who wrote speeches for Evatt in the late 1950s but was also sympathetic to the laissez-faire tendency in the Liberal Party, put it this way in the 22 January 1966 edition of Nation:

When Sir Robert Menzies first came to power in 1949, the Liberals were going to change the world. They were going to stop the spread of socialism, they were going to stop the accretion of power to the Canberra government, put value back in the pound, put an end to the menace of communism… There was a grand reforming zeal about the Liberals in 1949 with their talk of “free enterprise” and the need to revive the market economy after years of “socialist controls.”

Things have worked out differently. Sir Robert Menzies has presided over a government which in most important fields went in the opposite direction from that indicated by the brave words of 1949.

Newton went on to list the reversals: the ratio of government spending to gross national product rose “half as fast again as it did during the wartime and postwar Labor administrations”; power was centralised “to a degree unknown during the peacetime days of Labor”; unprecedented inflation raged “until the force of circumstances and logic impelled [Menzies] to throw his political doctrines out and import some modern planning and control techniques”; and the fitful attacks on communism petered out after the unexpectedly low-key findings of the royal commission set up after the Petrov defections.

Underlying the economic reversals was the ascendency of an approach to economic policy that had emerged from economist John Maynard Keynes’s landmark book, The General Theory of Employment, Interest and Money. Not all (or even most) Keynesians were strict followers of Keynes, and his ideas were still evolving when he died in 1946. But the younger generation of Australian economists and officials generally shared the view that government had more tools for managing the economy than it had traditionally used, especially when demand for goods and services was low and unemployment was climbing.

As the economic historian Alex Millmow writes, Australian economists had been debating the question of inadequate demand since the Depression years of the early 1930s, and many of them were receptive to Keynes’s views when they arrived from Britain. Those two sources of inspiration — the Depression experience and Keynes’s work — had helped to shape the economic policies of the Curtin and Chifley governments and to create a bipartisan postwar commitment to full employment.

Promoting these ideas within the public service was a loose group of talented and highly placed economists — “seven of the best,” another economist, Heinz Arndt, called them, “all men of good minds but short stature, [who] were nicknamed ‘Mr Menzies’s Seven Dwarfs.’” Of these, the best-known was the head of the Commonwealth Bank (later the Reserve Bank), H.C. “Nugget” Coombs, a man who “combined quick intelligence, an ability to translate basic principles into practical decision-making, a mastery of argument in committee, a willingness to delegate, and a broad human understanding,” according to the economic historian Boris Schedvin. The other major figure was the more austere Treasury head, Roland Wilson.

Unlike earlier generations of public servants, this group and their peers were all university graduates who had generally been recruited into senior roles under Labor. Their views weren’t uniform — Wilson was suspicious of Coombs’s impulse to fine-tune policy at frequent intervals, and Coombs disagreed with Wilson’s reluctance to intervene early — but they would all have been comfortable with the idea that Australia was a “mixed economy” in which government policy played a central role. Each of them stayed on in senior public service roles throughout the 1950s, and Coombs and Wilson well beyond.

Pragmatic common ground: the Menzies government’s banker, H.C. “Nugget” Coombs (top), shown here with Labor postwar reconstruction minister John Dedman in London in 1949. National Archives of Australia

But the influence of the Keynesian debate extends back further than the wartime Labor government. Economic historian Selwyn Cornish dates the arrival of the Keynesian revolution back to the early months of the second world war, when the United Australia Party–led Coalition was still in power and Menzies was treasurer and prime minister. Menzies’s assistant treasurer was an “early Keynesian,” Percy Spender, who persuaded cabinet that the war economy could be financed without lifting taxes (an unorthodox view at the time) and without any consequent blow to the government’s shaky electoral position.

This early engagement with Keynes’s ideas makes it less surprising that Menzies, back in government after the war, “was more responsive to his public service advisers than to his anti-socialist constituency,” as Tim Rowse writes in his biography of Coombs. When it came to the crunch, the government’s banking legislation reflected Coombs’s ideas more closely than those of Menzies’s critics in the party. The fact that the advice coming from people like Coombs happened to be more electorally attractive no doubt played a part in Menzies’s thinking.

Economic policy was still constrained by fixed exchange rates, postwar currency zones and the grip of long-established trade relationships. Even with the extra weapons in the government’s arsenal, managing a fast-growing economy while dealing with conflicting goals wasn’t easy. When the war in Korea dramatically boosted demand for Australian exports in 1950, a spectacular rise in inflation was one unsurprising result. The government applied the brakes too late and too heavily, leading (among other things) to the sudden drop in classified advertising that so bothered the Sydney Morning Herald.

The pattern would recur during Menzies’s prime ministership. “Three times, in 1952, 1955 and again last year [1961], the Australian economy has been brought screeching to a halt after a period of runaway inflation,” wrote an anonymous contributor (probably John Douglas Pringle) in London’s Observer in mid 1962. The dramatic swings were an almost inevitable result of a simultaneous quest for accelerated national development (fuelled by high immigration) and full employment (prompted by memories of the damage caused by the Great Depression) using new economic policy techniques designed to keep the economy operating at close to capacity — and all overlaid with electoral pressures.

Even after the third and most notorious of those three “busts,” brought on by the government’s 1961 credit squeeze, Menzies’s political fortunes recovered fairly quickly. This time, the Bulletin was less sympathetic. The government had shown an utter lack of interest in “thinking out an independent and dynamic political programme or philosophy,” it editorialised in 1963, following a line developed in more detail a year later in former Bulletin editor Donald Horne’s book, The Lucky Country. At the root of the problem, according to the magazine, was the government’s “easy reliance” on ever-dependable preferences from the Democratic Labor Party. Nation, commenting on Menzies’s televised election policy speech in November 1963, saw a government willing to do almost anything to stay in power, including stealing policies “hand over fist” from the Labor Party.

Menzies and the international economy

Despite its leaders’ shortcomings, Australia continued to coast along on a wave of prosperity for the remainder of Menzies’s prime ministership, and for another half decade beyond. If the Bulletin and Nation were even half right, something else was going on.

In fact, something else had been going on all along, and it had its roots back in the early 1930s. As the economic historian Ian McLean writes in his recent reappraisal of Australian economic history, Why Australia Prospered, Menzies inherited an economy that had come out of the second world war in much better shape than it had out of the first. Per capita GDP had fallen by 8 per cent in the war years of 1914–19, yet it rose by 17 per cent between 1939 and 1946, when the economy was back on a civilian footing. There was no single reason — rather, the improved position was the cumulative effect of decisions, institutions and events that equipped Australia relatively well to weather the economic vicissitudes of the postwar era.

To begin with, the economy of the late 1930s was in a healthier condition to respond to the demands of wartime. The first world war had exposed Australia’s vulnerability to any disruption of international trade routes, making governments more willing to protect the manufacturers who had emerged since 1921, even if they were less efficient than companies exporting to Australia. Import tariffs began increasing in 1921 and were lifted significantly after the economy ran into troubled waters later in the decade. When hostilities broke out in 1939, Australia had more manufacturers well-positioned to take on war-related work.

The pattern of manufacturing during the war — its size, composition, location and technical sophistication — created a much stronger basis for industry after 1945, and it grew quickly. “Simply put,” writes McLean, “if any decade in Australian history is to be singled out as one of ‘industrialisation,’ it is the 1940s.” After this “unprecedented spurt,” manufacturing accounted for 26 per cent of the economy.

Economic policy expertise had increased, too. People like Coombs and Wilson had gained valuable experience running a planned wartime economy and preparing for the postwar era, mostly during the Labor governments of John Curtin and Ben Chifley, 1941–49, which were explicitly committed to maximising employment and overall economic welfare. High levels of immigration also added to the rate of economic growth.

But with Australia already significantly exposed to international conditions, the state of the world economy was a — if not the — vital contributor to Australia’s prosperity. “Perhaps the most important fact about the long boom is that it was not unique to Australia,” McLean writes. “Precisely the same labels refer to what was almost a worldwide phenomenon in its characteristics and timing. Indeed, all the industrialised or advanced Western economies participated.”

The economies of the West grew because of bottled-up demand dating back as far as the Depression, because of demand for the new consumer goods that had emerged in the 1930s, and because the stock of housing and other infrastructure had run down during the war and needed to be replaced. They also grew, McLean writes, because a “stable and well-functioning international economic system” had emerged in the early postwar years, along with buoyant prices for rural exports and the resumption of foreign investment. “Given this international environment, the only surprising outcome for Australia after 1945 would have been slow growth, stagnation or decline.”

An increasingly important part of the international environment was Asia, and especially Japan. Despite Menzies’s renowned admiration for British institutions and values, Britain’s importance as a trade partner declined steadily from the early 1950s, and it was overtaken by Japan at around the time of his retirement. (The shift also contributed to pressure in the early 1960s for a change in immigration law. “The winds of change are blowing away much of the ill feeling harboured by large numbers of Australians towards the Japanese following World War II,” the United Press International correspondent Robert Bennyhoff wrote in late 1964. “They are the same winds that are beginning to eddy against the ‘White Australia’ immigration policy.”)

McLean’s verdict on Australia’s long postwar boom challenges the argument that the economic policies of the era (and especially tariff protection) were lazy, ill-considered and ultimately counterproductive. Critics of Menzies’s policies point to the fact that, adjusted for population growth, the Australian economy grew more slowly than the OECD average during the Menzies years. But McLean shows that the OECD average grew relatively quickly because war-devastated countries like Japan, Germany and France, and countries that were relatively poor to begin with, tended to expand more rapidly. They had more catching up to do and could use wealthier countries as a template, a phenomenon economists call “convergence.”

Australia is more fairly compared with countries like the United States and Canada, says McLean. Australia’s per capita GDP increased faster than that of the United States over the two decades after 1950: as a proportion of the US figure, it was 77.5 per cent in 1950, 77.6 per cent in 1960 and 80 per cent in 1970 (perhaps not as large a rise as convergence theory might predict, but the same as Canada’s performance and better than New Zealand’s). Australian policy-makers hadn’t done any great harm — “no small achievement in itself,” writes McLean — and Australia’s distance from Europe had proved less of a problem than many people had imagined.

In that sense, Menzies and his government — across their full sixteen years, with the booms and busts ironed out — rode the international postwar boom more capably than his critics acknowledge but not as well as his greatest admirers claim. Official unemployment stayed below 2 per cent throughout the period, and successive waves of migrants were accommodated remarkably peaceably. What they didn’t do so well was to anticipate the next round of economic and social challenges.

Menzies’s blind spots contributed to the failure to look ahead. He was a late convert to the importance of a full thirteen years of schooling and adequate funding for universities; he didn’t understand Asia’s growth potential; he mistook low unemployment for an absence of entrenched poverty; he misread the process of decolonisation in Asia, Africa and South America; and he uncritically threw Australia into the Vietnam war. But Australia’s relatively small pool of talent and short history as a nation also played a part.

The international economy entered a period of dramatic change in the 1960s, and by the end of that process Australia needed a different set of policies to maintain living standards. In the meantime, three more Liberal prime ministers had come and gone, and it was a Labor PM, the first for twenty-three years, who felt the full force of the new crisis. •