In the fiscal borrowing crisis that Australia faced in the Great Depression, Joseph Lyons, then assistant treasurer of the Labor Scullin Government, saw it a failing of national character if Australia didn't adhere to "Sound and Honest Finance" and only borrow what it could repay. This directed his actions in saving the Federal Government from defaulting on its fiscal bond obligations. The principle of "Sound and Honest Finance" worked well as a popular political policy. It was easily understood by the electorate, who other than large borrowings for a house, understood the money in - money out principle from everyday experience. Advocates of Free Markets and Free Trade don't have such an easy time, the principles are often abstract, and don't fall as easily into the day to day experience of most of the electorate.

Joseph Lyons

Joseph Lyons was born in Tasmania, he became Premier of Tasmania in 1923 in a minority Labor Government, which relied on the Nationalists for support. He won majority in 1925, but by 1928, with the depression beginning to weigh in on political calculations, he lost government and resigned. Lyons decided to run for a federal electorate, a deal which was sweetened by Jim Scullin, who promised Lyons a cabinet seat if Labor won the election. It did, and Lyons became the Postmaster-General.

It was in the Scullin government where Lyons helped defuse the bond issue. but when Ted Theodore returned to Cabinet, Lyons resigned, from both cabinet, and the Labor Party. Lyons remained in parliament and took over leadership of the United Australia Party (UAP), which was a newly formed fusion of Nationalists and former Labor representatives, backed by the Melbourne based, "Group". The UAP with Lyons took the helm of government in the 1933 election, and remained in power until Menzies lost government in 1941.

Lyons was known as "Honest Joe" and he came to federal government with a name for safe and solid economic policy, which at the time was called "Sound Finance". In Tasmania he had reduced government's expenses, reduced loans and raised taxes. This bought Tasmania's economic house in order. This style was very recognizable to voters, many practised each week in their home when managing family budgets. Don't spend more than what you have, reduce you exposure to risk from loans and try to maximise your income. That style of fiscal management rings clearly in the electorates.

Default and Civil War

Lyons' principle of "Sound Finance" brought himself and NSW Premier Jack Lang to clash. The federal government with its consistent anti-federalism had under-written loans to NSW. Lang campaigned on the principle that the workers should not have to pay for the failure of the banks and the market. As a consequence, he wasn't go to pay any loan, until the banks renegotiated with the NSW government on the terms of repayment.

Lyons saw this as violating "Sound Finance", not to mention making a cash strapped federal government liable for NSW's loans, so he tried to get NSW's income tax rolls to collect tax directly. Lang had these hidden and protected. During this instability, conservative militia such as the Old Guard and New Guard sprang up. The NSW Government suddenly had its own supporting militia, as well as the sworn allegiance of the NSW Police Force - who - courtesy of the depression had rifles, steel helmets and armoured cars.

The Lighthorse was moved to protect Canberra from a NSW invasion and the Australian military in Sydney was put on alert. The Federal and NSW governments came within an angels breadth of civil war. The Governor solved the issue, by sacking Jack Lang. this was the point that civil war could have started, if Lang had denied Phillip Games' authority; instead Lang said, "The bastards have sacked me. I am a free man." There was no blood on the wattle that day.

Enid's Fiduciary Lament

Things have changed however, now Credit Cards are sent through the mail unsolicited, through low interest rates money is the cheapest it has been in a long time, household savings rates are also low , and our Current Account Deficit continues to increase . Judith Brett argues that Keynesianism, which Ted Theodore proposed as a means to spend Australia out of the depression, eroded the value of "honest and sound finance" as a guiding government principle of economic management. Brett writes;

The gradual acceptance of Keynesianism which decoupled the logic of the household economy from that of the nation's also began to decouple the stability of the personality from the stability of the financial system.

Enid Lyons, the wife of Joe Lyons, and the first woman elected to federal parliament wrote on the erosion of honest finance and its replacement with the credit economy;

Neither Joe nor the thousands who heard him speak were conscious that within a few years a new theory of public finance would be universally accepted; that by 1960 the whole world would be fidicuary ... They [those listening to Joe Lyons] cheered for the better times they longed for and for which they were prepared to pay. They would take the hard way out of the depression but the honest one.

Home Econ 101

The political narrative of the home, and everyday experience is a powerful one that politicians ignore at their own peril. I am fond of saying that I would trust a plumber with the budget before I would trust a politician; which probably stems back to the household experience of honest finance. John Howard discovered this when Pauline Hanson and One Nation rose in popularity in Queensland.

Much of One Nations rhetoric and policies were based in honest finance, the kind of practical knowledge an owner of a fish and chips shop would have in spades. John Howard got schooled in both populism and a modern permutation of honest finance, losing the political narrative to One Nation. While Howard weathered the storm, it was the refugees in Woomera, Christmas Island, Nauru and other refugee camps that bore the brunt of Howard removing One Nation as a political force . Ironically he didn't focus on the honest finance policies, but instead the anti-immigration stance.

Pauline Hanson's maiden speech included ;

This country of ours has the richest mineral deposits in the world and vast rich lands for agriculture and is surrounded by oceans that provide a wealth of seafood, and yet we are $190 billion in debt with an interest bill that is strangling us. ... We have one of the highest interest rates in the world, and we owe more money per capita than any other country. All we need is a nail hole in the bottom of the boat and we're sunk. ...

Anyone with business sense knows that you do not sell off your assets especially when they are making money. I may be only `a fish and chip shop lady', but some of these economists need to get their heads out of the textbooks and get a job in the real world. I would not even let one of them handle my grocery shopping. ...

Reduced tariffs on foreign goods that compete with local products seem only to cost Australians their jobs. We must look after our own before lining the pockets of overseas countries and investors at the expense of our living standards and future.

While the first third of the speech was focused on Aboriginal Policy, and much of the latter part of the speech focused on isolationism and anti-immigration policies, the thread is clear in the narrative. She believes her policies to come from her own suburban experiences in managing money, business, entreprenuerism and provincialism. One Nation imploded, but its message was clear, if a political party can place political policy in the terms of the household economy and suburban experience - it will gain electoral support.

Free Trade and Open Markets

Andrew Leigh recently commented on Barnaby Joyce's recent comments on "sound finance" and his practical suburban experiences being translated to international and global affairs;

Senator Joyce seems to be a bright guy, representing rural Australians, who have most to gain from open trade. Yet even he seems to think like a mercantilist: not recognising that the largest benefits that a country typically receives from trade liberalisation are from opening its own markets.

Trade liberalisation doesn't translate well to the home econ 101 experience, sound finance, or the suburban experience. To many people deregulation means the local petrol station is changing hands and getting redecorated every six months. In the US a common quip is that deregulation has meant that the local bank on the corner changes hands four times a year.

While trade liberalisation has data to back these policies up, it does not translate quickly and easily to the everyday suburban experience, and where it does, it is often in an abstract manner. It remains of greatest appeal to academics and backroom party policies. Free trade, open markets and trade liberalisation needs to adopt the language of household and suburban experience so that it gets the same populist appeal as "Sound and Honest Finance".

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The Department of Foreign Affairs and Trade has a wonderful collection of historical documents all trapped in pulped wood and not digitally indexed or searchable.

Documents pertaining to the Columbo Plan, Malaysia, Trade Agreements, Indonesia Independence, etc, etc; all tied up into $50 and $60 paperbacks and hard covers.

Some documents are digital . For instance, UK's Secretary of State M. McDonald to Joe Lyons on January 1939;

Secretary of State for Foreign Affairs [2] has received a large number of reports from various reliable sources which throw a most disquieting light on Hitler's [3] mood and intentions. According to these reports Hitler is bitterly resentful at the Munich Agreement which baulked him of a localised war against Czechoslovakia, and demonstrated the will to peace of the German masses in opposition to the war mongering of the Nazi Party. He feels personally humiliated by this demonstration. He regards Great Britain as primarily responsible for this humiliation and his rage is therefore directed principally against this country which he holds to be the chief obstacle now to the fulfilment of his further ambitions.

The Department of External Affairs to Ballard in 1946. Some of the other ones in that period have a detailed look at the party politics in Indonesia at the time.

You can inform Sjahrir that our reading of the Cheribon agreement appears to preclude us at this stage of the negotiations from formally accrediting a consular or diplomatic representative to his Government. You should assure him however that we wish to establish close links with the Indonesian Government and ask for his general comment on the situation. What we have in mind is that you should be, for all practical purposes and for the time being, the Australian representative with the Indonesian Republic.

4. In the absence of any Indonesian commentary on the Cheribon agreement, we are inclined to attach some weight to the view that the agreement would facilitate the emergence, as a self-governing state in international law, of the United States of Indonesia rather than the Republic of Indonesia.

Cablegram from Percy Spender to Robert Menzies during the ANZUS negotiations;

Thank you for your telegram 3411.[1] While I fully appreciate the reasons for your view that we should not do anything which might tend to narrow the field of discussion between the United Kingdom and United States, further information which I have just received makes me feel that there is some danger of American misapprehension of the Australian attitude if our views become known to the United States only through the United Kingdom, even though the United Kingdom may be putting forward views which in some general strategic sense are those of the Commonwealth as a whole.

Menzies to Fadden;

Also tell Percy Spender that the Pacific Pact is not at present on the map because the Americans are uneasy about the stability of most Asiatic countries. We do not need a pact with America. They are already overwhelmingly friendly to us.

The Pacific Pact was Percy Spender's idea to make a treaty that ensured a permanent US presence in the Pacific. It was also to try and create a counter-weight to NATO influence which was being put together at the time.

Menzies was cold to it at first, as was the US and UK, but when John Foster Dulles arrived in Australia after the outbreak of the Korean War, the initial impetus of the Pacific Pact was to become ANZUS.

Hopefully DFAT will continue the digitisation of our foreign policy history so it is readily accessible and searchable.

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In 1932 Australia came close to civil war as NSW and the Federal Government fought over defaulted loans and tax rolls. The tensions between Jack Lang and Joe Lyons escalated until Sydney was rife with militia for both sides and the Lighthorse had been moved outside of Canberra to halt any invasion of the ACT from NSW. In the end Phillip Game, the Governor of NSW, dissolved Lang's government.

There is no real simple telling of the whole episode as it was during the Depression, a period of civil turmoil anyway, and there were competing bodies of power; federal vs state, federalism vs anti-federalism, Governor vs Premier, appointed executive vs democracy, practice vs emergency, empire and dominion, not to mention the differing moral visions of Lang and Lyons.

So like many of the things that go into emergency is was a confluence of events and tensions from many sources. The incident that became the sticker was when NSW refused to pay London an interest payment until the interest rate could be renegotiated. Unfortunately, the Federal Government had under-written the loan, and was compelled to collect the interest directly from NSW.

It was an act of anti-federalism, or the mixing of government structures and responsibilities, that led to the showdown. While me may complain about the High Court in the last thirty years, the federal government was prepared - as the US federal government had been in America - to use military force in order to assert its sovereignty over Australia's biggest and wealthiest state.

If the loans had not been under-written by the Federal Government then Joe Lyons would not have legal compulsion to pursue the interest payment. It would have been an issue between Lang and London - and there was sympathy in London for the interest rate to be renegotiated. The London banks were charging Australia and NSW higher interest rates than other nations and had been least forgiving of Australian war debt.

Lang and Game had been at loggerheads over their constitution roles as well. Labor's platform at the time was the abolition of the Legislative Council - an appointed body with entrenched pedigree from Wentworth's squattocracy days. Labor had managed to 'suicide squad' the Queensland upper house, but Game resisted the adding of new positions to the NSW Legislative Council so it could be abolished.

The other part of that platform was that the Assembly was sovereign over the upper house and Governor as it was democratically elected by the sovereign - ie the people. Which is a simple reading of the Westminster system and as we have seen in 1932 and 1975 - untrue.

The best outcome, and less contentious, would have been for the Lang Government to make the Legislative Council a democratically elected body, as was done in the the 1970s - approximately 150 years too late. Bicameral parliaments are superior to unicameral ones.

I consider the reserve powers a constitutional race condition and believe that a ceremonial executive needs the inflexibility of constitutional limits slapped on them.

However, it is silly to think there are not other competing sovereign powers in the mixed constitution of a Westminster system and sovereignty at any one time is determined by 'accidents of personality' as much as anything else. Especially when the actions are not constitutionally tested, as Game's was not.

Unfortunately austlii doesn't have the Financial Agreements Enforcement Act of 1931 (passed by Scullin) in its database, nor is the NSW Constitution the same as it was in 1932. I also cannot find the actual text of the proclamations that Lyons and Lang issued to cut each other off as they played ping pong with NSW public servants and hide-n-seek with the tax monies.

To top it all off, I cannot find the High Court case, so no discussion of the constitutional and legal details from me.