Harnessing the Power of Money for the Public Interest
The inside story of the Commonwealth Bank of Australia was told by an Australian politician named Jack Lang in a revealing book called The Great Bust: The Depression of the Thirties. Lang was Labor government’s Treasurer in 1920-21 and Premier of New South Wales during the Great Depression of the 1930s.
The remarkable success of the Commonwealth Bank was attributed to two men: Denison Miller, its first governor, and King O’Malley, its key proponent. Both had been bankers themselves and knew the great secret of banking: that banks create the money they lent simply by writing accounting entries into the deposit account of borrowers. They turned this insight to the advantage of the public.
Before coming to Australia O’Malley worked in a small New York bank owned by his uncle…. He had been much impressed by the way his uncle had created credit. A bank could create the credit and at the same time manufacture the debit to balance it. That was the big discovery of O’Malley’s banking career.
In 1901 O’Malley went into the first Federal Parliament of Australia as a one-man pressure group to established a Commonwealth Bank.
This fact that a bank can create money out of nothing when it lends was then confirmed by a host of luminaries/authorities – UK’s Assistant Under Secretary, Ralph Hawtrey; the first Governor of Reserve Bank of Australia, D.C. Coombs, and British Chancellor of the Exchequer, Reginald McKenna.
It was this “mystical power of creating the means of payment out of nothing” that the Commonwealth Bank’s farsighted founders harnessed in the service of the Australian people.
Led by the Vision of a Renegade Banker
Denison Miller, the Bank’s first governor, built on the groundwork laid by O’Malley in the legislature. Miller knew how a bank worked and saw the opportunity a government-backed bank presented to the struggling Australian economy. Miller set out to make the new national bank the finest institution the country had ever known.
His first bold stroke was to start the bank virtually without capital. He was wary of going to the politicians for money; he was convinced that the bank could get by without capital.
Miller was the bank’s only employee. By January 1913 he had completed arrangements to open a bank in each state of the Commonwealth, and also an Agency in London. On 20th January 1913 he declared the bank opened with words, “…it is backed by the entire wealth and credit of the whole of Australia.”
Miller proceeded to advance massive sums, simply on the credit of the nation. Melbourne Board of Works sought Sterling 3 million from the Commonwealth Bank and upon receiving it asked where this juvenile bank raised the money? Miller replied, :”On the credit of the nation. It is unlimited.”
Miller and his bank were a brilliant success. Australia had been a debtor nation dependent on England until the First World War. Then it demonstrated its independence by financing its participation in the war with its own government owned bank. It started its owned Commonwealth Shipping Line, which rivaled London’s.
The Commonwealth Bank found Sterling 350 million to fund War purposes ; when asked after the war if it could raise another Sterling 350 million to fund productive purposes, Miller answered, not only was his bank able to do so, but would be happy to do it.
At the end of the war, the Bank used its power to begin a dramatic expansion of the economy. In just over five years, it opened hundreds of branches throughout Australia.
The Commonwealth Bank of Australia functioned as a wholly owned state bank until the 1990s when it finally succumbed to privatization and the tentacles of the private bankers’ Bank of International Settlements.
Coming soon – the early success of Bank of Canada.
An Islamic Monetary Reformist’s Take cum Edited Excerpts from Ellen Brown’s From Austerity to Prosperity- The Public Bank Solution
Islamic Monetary Reformist
Muhammad Zahid Abdul Aziz
Note: The Islamic solution will be bespoke with its required parameters.