SirReserve Leslie Melville:Bank of His Australia Contribution Bulletin to Central Banking in Australia April 2002 Sir Leslie Melville: His Contribution to Central Banking in Australia1 The following is the text of the Inaugural Sir Leslie Sir Leslie Melville was born on 26 March Melville Lecture delivered by the Governor, 1902, studied economics at Sydney University Mr IJ Macfarlane, at the Australian National (while also studying as an actuary), and University, Canberra on 22 March 2002. obtained his first job in 1924 as Public Actuary for South Australia. In 1929, aged I would like to start by thanking the twenty-seven, he was appointed Inaugural Vice-Chancellor – Ian Chubb – for inviting Professor of Economics at Adelaide me to give this address. We at the Reserve Bank University. In March 1931, he was appointed were wondering what we could do to as the Economist to the Commonwealth commemorate Sir Leslie Melville’s centenary, Bank, a position he held until 1950 when he so the invitation now gives the two became Australia’s Executive Director at the institutions – the Reserve Bank and the International Monetary Fund and World Australian National University – the Bank. During his central banking years he was opportunity to pay tribute jointly to Sir Leslie a prolific writer on economic matters, both in his home city, and most importantly in his academic and practical, and contributed presence. significantly to economic debate in Australia My address today will not be a biography and overseas. In 1953, he left the of Sir Leslie because there are already several Commonwealth Bank to take up an excellent biographical essays available and, I appointment as Vice-Chancellor of the am pleased to say, a full-length book is Australian National University. In 1960, he currently being written.2 Instead, I hope this was appointed Chairman of the Tariff Board, address will be seen as a general celebration but resigned after two years due to of Sir Leslie Melville’s contribution to public disagreements with the Minister for Trade, life in Australia and a vote of thanks from his John McEwen. He subsequently served as successors for his outstanding and Chairman of the Commonwealth Grants under-appreciated achievements. But, Commission for eight years until the early notwithstanding this intention, a very brief 1980’s. In the 1950’s, 60’s and 70’s he also biographical sketch should help to set the served three different terms as a Board scene. Member of the Commonwealth, and later Reserve Bank. 1. I would like to thank Guy Debelle for his assistance with the speech, Virginia Macdonald and Allan Seymour for archival material (all of the Reserve Bank) and Selwyn Cornish of the Australian National University for his writings and his advice. 2. See Cornish (1993) and (1999) for essays. Cornish is also writing the biography. 12 Reserve Bank of Australia Bulletin April 2002 In assessing Sir Leslie’s contribution to Bank took over the note issue function (clearly Australian public life, pride of place must a central banking activity) from the Notes inevitably be given to his contribution to Board, who had in turn taken it over from central banking. He was wholly occupied with Treasury. The second is around 1930, when this from the age of twenty-nine till his early the Commonwealth Bank became an fifties, and if we add in his years as a board important player in economic policy debates member, he has an association with central (in this case debates about the exchange rate). banking stretching over forty-five years. I think If we are to rely on Professor Giblin, who the Vice-Chancellor recognised the centrality wrote the definitive history of the subject of this aspect of Sir Leslie’s life by choosing which I cited above, it is this latter date which me to be the speaker here today, so it will marks the start of true central banking in figure prominently in the remainder of my Australia. And, of course, it was at about this address. I have another motive for doing so date that a twenty-nine year old Leslie Melville because I want to use Sir Leslie’s career to joined the Commonwealth Bank. The history help answer a difficult question – how old is of central banking in Australia and the history central banking in Australia? This is something of Sir Leslie Melville are therefore largely that has perplexed us at the Reserve Bank, coterminous. If you read through the and has not been definitively answered by the correspondence files in the archives of the several economic historians that have covered Reserve Bank in the thirties and forties you the field. could be forgiven for thinking that Melville In a strictly formal sense, the present was the central bank. I will say more of that Reserve Bank is the continuing legal entity later. that survives from the old Commonwealth The world was very different when Melville Bank set up in 1912. It would be tempting, joined the Commonwealth Bank. To the best then, to claim that central banking started at of my knowledge, he was the first economist that time and the central bank is ninety years that they had ever employed, and I believe the old. Unfortunately, the original first economist to be employed full-time Commonwealth Bank was a savings and anywhere in the Australian public sector. In trading bank with no central banking those days the central bank was composed responsibilities, and so this legal continuity entirely of bankers, and the Treasury entirely argument will not lead us to the right answer. of accountants. There were good economists At the other extreme we could say that, since in Australia at the time – Giblin, Copland, the Reserve Bank as a separate organisation Shann, Mills etc but they were largely confined only dates from 1960, at the time of the to the universities. The exception was when separation of the Commonwealth Bank, Sir Alfred Davidson appointed Shann to central banking is only forty-two years old. advise the Bank of New South Wales in 1930, Clearly this is also false – the start of central a few months before Melville was appointed banking clearly pre-dates separation as is to the Commonwealth Bank.4 The evidenced by, among many other things, Commonwealth Bank had resisted appointing Professor Giblin’s book The Growth of a Central an economist for several years despite the Bank, which was published in 1951.3 urgings of the Bank of England to do so. The So at what date between 1912 and 1960 did fact that it finally felt the need to do so, and the old Commonwealth Bank start to engage to such an important position, adds weight to in what we would clearly define as central the view that this point in time, or somewhere banking functions? There are two candidates near it, should be viewed as the start of that can be put forward as the correct date. professional central banking in Australia. The first is 1924, when the Commonwealth 3. Giblin (1951). 4. Appleyard and Schedvin (1988). 13 Sir Leslie Melville: His Contribution to Central Banking in Australia April 2002 And what a time for Melville to be thrown Bank. It is doubtful how much time the into the fray. The depression had started, the Governor and Deputy Governor of the day Australian pound had depreciated against had left over for central banking matters, given sterling and there was intense public debate the huge number of commercial bank on economic matters. Melville had already branches and staff they had to oversee. In these played an important and public role in these circumstances, it must have been comforting debates in the two years before his to be able to turn to someone of Melville’s appointment, but henceforth he would be a knowledge and experience. policy-maker with responsibility rather than The next aspect of Sir Leslie’s career that I a critic without responsibility. It is interesting would like to look at is his association with that Melville, who publicly supported the the setting up of the Bretton Woods devaluation and hence was considered as an institutions – the IMF and the World Bank expansionist, was appointed by an institution (and, but with a long delay, the World Trade whose Chairman – Sir Robert Gibson – was Organisation). It is hard for recent generations the leading deflationist of the day (and to understand, but this whole venture was opponent of devaluation). undertaken for the most idealistic and At the Commonwealth Bank, Melville public-spirited of reasons. It was an exercise created and led the Economist’s Department, in international cooperation designed to which advised the Board on monetary policy, ensure that the post-war world did not just as the present day Economic Group of degenerate into the isolationism and the Reserve Bank does seventy years later. As ‘beggar-thy-neighbour’ policy-making that he built up his team he looked out for young had characterised the previous twenty years economists to add to his staff – one was and had contributed so much to the HC Coombs, whom Melville recruited in depression and the Second World War. 1935. Virtually from the beginning Melville’s Australia was an enthusiastic participant in position was an extremely senior one despite these negotiations at first and it is no surprise his relative youth. Much of what he did would that Prime Minister Curtin chose Melville to more appropriately be done by a Governor lead the Australian delegation. Melville had or Deputy Governor today. The already been in correspondence with Keynes correspondence files reveal that he was dealing and others about international monetary directly with Prime Ministers and Treasurers.