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The Evolution of Australian Treasury Thought Since 1945

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The Evolution of Australian Treasury Thought Since 1945 The Evolution of Australian Treasury Thought Since 1945 by Greg Whitwell, B.Ec. (Monash) A Thesis for the Degree of Doctor of Philosophy, University of Melbourne 1982 I certify that the thesis ent,itleal The Evolution of Australian Treasurv Thougtrt Since 1945, presented for the degree of Doctor of Philosophyr is the result of my own research, except vilrere otherwlse aclorowledged. Signed: in 6LllM vr Date: lq rL l' ,/ Digitisotion oI this thesis was mode possible with the support ol the Foculty of Business & Economics in recognition of the outstanding contribution of Professor Gregory Whitwell, THE UNIVERSTTY OF Professor Whitwell provided distinguished service to staff ond METBOURNE students of the Faculty from 1982-2017, CONTENTS Abstract Preface Acknowledgements Tables and Charts Abbreviations Part One: Methodological and Theoretical Perspectives Introduction to Part One 2 1 Role, Structure, Personnel, Authority: An Introduction to the Treasury 4 2 Methodological Perspective 42 3 Theoretical Perspective: The Keynesian and Neoclassical Models 68 Part Two: Historical Perspective: The Genesis of Australian Treasury Thought Introduction to Part Two 141 4 The Adoption of Keynesianism in Australia up to 1945 142 5 The Evolution of Keynesianism in Australia, 1945-56 201 Part Three: The Evolution of Australian Treasury Thought,1956-79 Introduction to Part Three 232 6 Savings and Balanced Growth: 1956-62 234 7 Resilience, Steadiness and Stability: 1963-67 272 8 Coping with Disorder: 1968-73 307 9 Discipline, Flexibility, Government Impotence: 1974-79 343 10 Explaining the Transition 384 Bibliography 406 Preface This thesis aims to provide an understanding of the changing economic philosophy of the Australian Treasury, an institution of undoubted importance in influencing the nature of post-war economic policy but one which has been largely neglected by economic historians. As a corollary, the thesis aims also to make some (though of course a very limited) contribution to an even more significant gap in Australia's post-war economic history: an analysis of the contours of Australian economic thought in general. Recently, Fred Gruen has provided a survey of Australian economics from 1968 to 1978 1 and Geoff Harcourt has discussed the leading schools of economic thought in Australia - monetarist, bastard Keynesian, and post- Keynesian - and has related them to some key economic institutions, including the Treasury. 2 Both of these are valuable contributions but are notably brief. Barry Hughes's Exit Full Employment 3 is much more comprehensive and discusses Treasury thought in some detail but, as with Gruen and Harcourt, is concerned essentially with the 1970s. This thesis, by contrast, covers not only the 1970s but stretches back to the 1930s in an attempt to show how Treasury thought has evolved over more than four 1 F.H. Gruen, 'Australian Economics 1968-78: A Survey of the Surveys', in F.H. Gruen (ed.) Surveys of Australian Economics, Vol. 2, (George Allen & Unwin, Sydney, 1979). 2 G.C. Harcourt, 'On Theories and Policies', in J.P. Nieuwenhuysen and P.J. Drake (eds.), Australian Economic Policy, (Melbourne University Press, Carlton, 1977). 3 Barry Hughes, Exit Full Employment: Economic Policy of the Stone Age, (Angus & Robertson, Sydney, 1980). decades (with emphasis on the post-war period). To be more specific, the thesis is not a history of how the Treasury has influenced policy but aims to piece together the various elements of the Treasury's outlook - the way it views the economy and economic agents - to show how this view has changed over time, and to explain why it has changed. Given these aims, it seems essential to abandon a narrative style for an explicitly analytical and hermeneutical approach. For narrative would tend to obscure the extent and nature of the changes which have occurred in Treasury thought and obscure also the interrelatedness of the department's ideas. Liberal (but hopefully not excessive) use has been made of quotations. Such quotations are essential for giving flavour to the ideas discussed. More importantly, in an interpretative essay language is crucially important. Finally, some mention should be made of possible complaints concerning the style of the thesis. Perhaps the main complaint which could be raised is that the thesis is overly relativistic, in that it concentrates on tracing the evolution of Treasury thought and says little about the validity of the department's views. This is openly acknowledged. Nevertheless, before one can criticise (or support) the Treasury it seems essential to know something about what the department really thinks. It seems essential also to know why the Treasury thinks the way it does. In both these respects the thesis has some value. Hopefully, the thesis will convince the reader of an important fact: ideas about the world are not static but variable and assumptions made about human nature are of fundamental importance in determining one's view of the world and the economy. One has to be quite clear of these assumptions before one can engage in debate over which is more realistic. Acknowledgements In the course of preparing this thesis I have received support, encouragement, guidance and even sympathy from a variety of people. A few of these deserve particular thanks. To begin on a technical note, Silvia Rametta patiently and skilfully led me through the intricacies of using word processors, for which I am most appreciative. Sonia Puglielli also provided much assistance and cheerfully and promptly answered my queries. Over the last year or so my physical and mental condition has been a source of constant concern to my parents; they have been ever-anxious to provide assistance and as always have shown unlimited generosity. Simone Hutchinson has had to put up with so much over the last three years, particularly over the last six months, and has somehow managed to tolerate my state of preoccupation. I apologise, again, for placing such a strain on our relationship. Among the members of the Economic History Department of the University of Melbourne, I am pleased to record my heartfelt thanks to Judy Tyers for her support and for her intelligent and stimulating conversation; the latter provided welcome relief from the thesis and reminded me of the importance of topics other than Treasury thought. Ross Muir always enquired after my progress and we were able to sympathise with each other over having to meet deadlines. My greatest debt is to my supervisor, Professor Boris Schedvin, whose influence on my outlook in general and my approach to economic history in particular has been considerable. The thesis has benefitted from his insight, wisdom, perspicacity, and breadth of knowledge and vision. January 1982 Tables and Charts Table 1.1: Academic Qualifications of First and Second Division Treasury Officers, 1956-79 25 Table 1.2: Completed Treasury Courses by Discipline, as of 1975 27 Table 1.3: Honours of Higher Degrees as a Proportion of Degrees Held by Third Division Permanent Staff in Selected Departments, 1968-74 27 Table 1.4: Graduate or Diplomate Staff as a Proportion of Permanent Third Division Staff in Selected Departments, 1968-74 28 Table 2.1: Third Division Salary Increases within Four Years and Eight Years of Joining, as at June 1974 60 Table 2.2: Second Division Career Service - Number of Departments Served In 60 Table 9.1: Budget Statistics, 1973-74 to 1980-81 348 Table 9.2: The Real Labour Cost Imbalance 352 Chart 1.1: The Australian Treasury, 1945 10 Chart 1.2: The Australian Treasury, 1966 12 Chart 1.3: The Australian Treasury, 1974 16 Abbreviations AGPS Australian Government Publishing Service CPD Commonwealth Parliamentary Debates CPP Commonwealth Parliamentary Papers GFEP General Financial and Economic Policy Division H of R House of Representatives RAGA Royal Commission on Australian Government Administration TEP Treasury Economic Paper Part One: Methodological and Theoretical Perspectives Introduction to Part One The central proposition of this thesis is that Treasury thought has evolved in the post-war period from a predominantly Keynesian model to a predominantly neoclassical model. Parts Two and Three of the thesis survey the trend of Treasury thought since World War II in an attempt to validate this proposition. Such an attempt, however, is not possible until certain preliminary issues have been discussed. For the analysis in Parts Two and Three is placed within the bounds of a particular methodological and theoretical superstructure. In order to appreciate the analysis it is necessary to explore this superstructure and understand its ramifications. Part One of the thesis, consisting of three chapters, undertakes this act of exploration. Its aim is to make the superstructure explicit. As a starting point, it is essential to outline what the Treasury does, to examine how its functions and structure have changed over time, and to discuss the department's recruitment pattern. To place the analysis in perspective, it is necessary also to discuss how the Treasury established and maintains it undoubted authority in the field of economic advice. In short, it is necessary to provide an introduction to the Treasury. Chapter One fulfils this need. Chapter Two is concerned with methodological issues. It clarifies the meaning of the term 'model' as it is used throughout the thesis and examines the validity of the notion of a Treasury 'model' or 'view'. It seeks also to survey the documentary and other material from which the Treasury's underlying model may be extracted. 2 . Chapter Three is concerned with theoretical issues. It is a key chapter. The meaning of 'Keynesian' and 'neoclassical' is explained at length; the differences between the two models are highlighted; and some of the ways in which the models have been synthesised are considered. The chapter discusses first the neoclassical model (using as its main sources the writings of Marshall, Walras and Robbins), then the Keynesian model (concentrating on Keynes's post-1930 writings), and concludes by examining the synthesising efforts of writers such as Hicks and Samuelson.
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