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Arresting Spending Power

The Governor of the Commonwealth Bank, Hugh Armitage (1941 – 1948) had significant input into the government’s response to the inflation threat, and regularly provided guidance and advice to Prime Minister John Curtin and Treasurer Ben Chifley as to how they should be conducted.

The federal government recognised the need to absorb and divert the population’s spending power in order to reduce the risk of inflation. In order to do so, it introduced a series of war loans and war savings programs. These included ‘Liberty Loans’, ‘Austerity Loans’, ‘Victory Loans’, ‘War Savings Stamps’ and ‘War Savings Certificates’ amongst others. These were instruments designed to absorb and immobilise citizens’ money in order reduce their spending power. Whilst all trading banks participated in these programs, the Commonwealth Bank of Australia managed more loan applications than any other.

The loans served a dual purpose. Not only did they help mitigate the risk of uncontrolled inflation, but they helped to finance the government’s war effort. The direct cost of the war to the government was colossal – eclipsing what had been spent during the First World War both in real terms and as a proportion of Gross Domestic Product. At its height, defence spending accounted for 71.6 per cent of the federal government’s outlays. These expenses were related to the recruitment and employment of armed services personnel, the manufacturing of aircraft, ships, tanks and munitions, the production of textiles, food, chemical products and many other activities associated with the war. The circumstances of the war made it difficult to raise finance from traditional sources, such as Britain – which was poorly positioned to extend credit to the Australian government. Moreover, repayments of foreign debt incurred during the First World War had become serious financial and political challenges throughout the inter-war years – challenges that had serious ramifications for the Australian economy. Therefore, the finance had to be found within Australia itself.

This cartoon appeared in a booklet designed to promote and explain the government’s war loans program that was produced by the War Loans and National Savings Campaign

This cartoon appeared in a booklet designed to promote and explain the government’s war loans program that was produced by the War Loans and National Savings Campaign. Image: State Library of Victoria, LTP 741.5994 B56C

This cartoon appeared in a booklet designed to promote and explain the government’s war loans program that was produced by the War Loans and National Savings Campaign

This cartoon appeared in a booklet designed to promote and explain the government’s war loans program that was produced by the War Loans and National Savings Campaign. Image: State Library of Victoria, LTP 741.5994 B56C

The Bank had considerable experience in raising public loans such as these, having managed the floating of ‘Victory Loans’ during the First World War. The Bank had been established in 1911, essentially as a government owned commercial bank, rather than as a central bank. The raising of war loans on behalf of the government was one of the first moves toward the Commonwealth Bank acting as Australia’s central bank. The continuation of this function during the Second World War furthered the Commonwealth Bank’s evolution into Australia’s central bank.

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