Economists and politicians : the influence of economic ideas upon labor politicians and governments, 1931-1949

Abstract

Throughout the period 1931-1949, the Australian Labor Party tended to be preoccupied with the role of money as a cause of, and cure for, economic instability. The party was very much influenced by a long tradition of economic thought which saw the business cycle as an essentially monetary phenomenon. In part, this tradition affected the A.L.P. through the influence of 'quack' writers in the 'monetary radical' tradition, who combined a monetary view of the business cycle with a fear of financial manipulation and a commitment to the abolition of interest. At least as significant as this unorthodox. influence was, however, the impact upon Labor thinking of the monetary views of the main school of expansionist economics of the 1920s. Labor's preoccupation with money was due in no small measure to the way in which much of the 'mainstream' economic debate focussed upon money in the 1920s and into the 1930s. Labor economic thinking was not suddenly transformed as a result of a 'Keynesian revolution' following the publication of the General Theory in 1936. The party had absorbed much of the 'Keynesian' policy message - in particular, about the centrality of counter-cyclical public works - well before 1936. Nevertheless, because of its long attachment to purely monetary theories of capitalist economic instability, Labor did not readily absorb the 'Keynesian' view of the way in which the economic mechanism operates. The party was, for example, inclined to view public works not so much as an instrument of 'fiscal' policy, as a conduit for monetary expansion. Even in the 1940s, the A.L.P. remained deeply imbued with the traditional view that monetary mechanisms played an all-important role in the economy. In government, Labor's ideological zeal was directed towards banking reform. By contrast, Labor politicians were not greatly interested in the issues (concerning the role of planning in normal peacetime economic management, and the form and social content of a full employment program) which were dividing economists and public servants at the time.