In his speech at the opening of the Sydney Harbour Bridge, Lang called for unity and reconciliation. He achieved neither. Events in the short period after the opening of the Bridge would see such hopes and words ignored and trampled upon.
There have been a number of rebellions in Australia:
- the miners’ rebellion at the Eureka Stockade in Ballarat, in 1854;
- the Rum Rebellion in New South Wales in 1808, the only successful armed takeover of government in Australian history;
- the convict rebellion in 1804 that led to the Battle of Vinegar Hill.
Lang was about to bring another to that list and, in so doing, brought the Commonwealth of Australia and New South Wales to the brink of civil war.
The Great Depression, which began in 1929, did not finish in 1932 as is often thought.. When Lang opened the Bridge on 19 March 1932, Australia, and particularly New South Wales as the most populous and developed State, remained subject to severe unemployment and financial downturn. According to statistics at the time, 31% of adult males in New South Wales were unemployed. The real figure was probably much higher: the unemployment statistics did not count farmers, young persons who had not yet been employed, those who received some income at times no matter how small, and those who had recently worked.
Popular thinking was that the appropriate Government response to a depression was to cut spending. This was to be done by reductions in public works, reductions in salaries and retrenchments, notwithstanding that the effect of the orthodox deflationary policies would also be to increase the pool of unemployed.
“The Premiers’ Plan” adopted in June 1931 by the Scullin Federal Government and the State Premiers called for a 20% reduction in public works, wages, pensions and other government payments. The aim of the Premiers Plan was to reduce Australia’s huge budget deficit and to get the books in order to enable Australia to continue to secure overseas finance. It was also thought that such a plan would restore business confidence. Today the thinking is that the plan was overly deflationary.
Lang’s proposals, which came to be known as the Lang Plan, called for reduction of interest on all government debts to Australians, suspension of all loan payments to all overseas creditors, the expansion of public works programmes and bank funding of government works through controlled credit expansion.
To the more affluent and to the conservative members of Australian society, this equated to Communism and the attendant risk of the loss of property and savings. To the Federal Government it meant a default in Australia’s monetary obligations to Britain and the US, even though it acknowledged the interest of the foreign loans to be high and even though Britain had obtained a 40% reduction in the interest rates payable to the US for money it owed the US. No such concession was given by Britain to Australia, despite much of that debt being attributable to Australia providing troops for WW1.
The Lang Plan and the Premiers’ Plan had also caused a division between the Federal Labor party, which had supported the Scullin Labor government, and NSW State Labor, which backed Lang.
In the background was Sir Philip Game, the hapless Governor, a decent fellow who took his orders from King George V as the King’s representative in New South Wales.
Lang’s call for unity and reconciliation at the Bridge opening was made against a backdrop of:
- massive unemployment;
- the Federal Government and State Governments, excluding Lang’s, proposing and implementing severe cuts;
- Lang repudiating loan repayments under a policy of “People first, not money”;
- Lang refusing to follow the Premiers’ Plan;
- opposition to Lang by the Federal Government and the conservatives, who believed his aim and policies to be those of communism (notwithstanding that Lang was fervent anti-Communist)
- a great deal of support for Lang by the larger part of the population of New South Wales;
- severe polarisation of attitudes within the population;
- a nervous Governor who was frequently abused for not being firmer with Lang;
- the New Guard, today thought of as akin to the TV Dad’s Army but at the time a paramilitary fascist styled citizen volunteer group of whom 25% had military combat experience.
The Crisis begins:
As was described in Part 1 of this article, Lang defaulted in the payment of interest due to Britain under loans made to New South Wales. The Federal Government paid the moneys due and passed the Financial Agreements Enforcement Act 1932, which gave the Federal Government the power to seize any and all of a State’s monetary reserves.
Lang challenged the legislation in the High Court, which held that the Act was valid and refused a right of appeal to the Privy Council. Stone makes the point that until this case the 31 year old relationship between the Commonwealth and the States had been one of delicate equilibrium whereby the States and the Commonwealth had an equal share of power and responsibility. In his words “The High Court judgment of 6 April 1932 was tantamount to dropping a brick on a finely balanced gold scale.” Suddenly Canberra had the power to dominate, override and ignore State governments.
No doubt the High Court judgment, for Lang, reinforced his views about money, society and the system, summed up in one of his most famous statements: “Always back the horse called self-interest, son. It’ll be the only one trying.”
Lang decided to tough it out, possible in the hope that the economy would likely improve the longer he held out. Attempts to make peace with British bondholders in London and to broker more favourable terms were soundly rejected.
A few days after the High Court verdict, Lang declared on radio:
"Although this fight is now at its most intensive point, it is also nearing its conclusion. You can win if you keep fighting. Your Government won’t weaken. Don’t you."
The Federal Government had issued decrees in March instructing NSW to pay its monetary deposits to the Federal Government. Not only was the NSW Treasury directed to pay NSW’s money to the Commonwealth, so were the banks holding any money belonging to NSW. All branches of NSW government and all government institutions in NSW were similarly directed, as were private organisations such as race clubs. Any and all money due to the NSW Government or held by the Government was to be paid to the Commonwealth.
The decrees had been suspended whilst the High Court challenge was mounted. With the High Court having determined the matter, the decrees could again come into effect.
Before the decrees could be reactivated, Lang made a pre-emptive strike: he had State officials withdraw all State money from the banks, over £1 million ($70m), in cash, which was deposited into the basement of the Sydney Trades Hall (below) in Goulburn Street, Sydney.
By reason of the Federal Government decrees, the banks could not honour NSW Government cheques, even if there were funds still coming in or within department accounts to honour them. The decrees meant that all monies had to go to the Commonwealth. All State Government cheques were therefore marked “refer to drawer”. The result was that even cheques for widows’ pensions and child endowment bounced.
Lang retaliated by turning New South Wales into a cash economy. All State public servants were instructed by a Treasury Circular of 13 April to collect public funds in cash, money which money was not to be banked under any circumstances. If it was necessary to accept a cheque, such cheque was only to be accepted if it was made out to “cash” with no government stamps or markings to be made thereon.
Some of the consequences were that:
- Where possible, lump sum amounts were paid to unions in cash so that they could pay their members including police, teachers, nurses and other public servants.
- Others lined up in the Treasury building payment queue to collect their pay, including Members of Parliament and Cabinet Ministers.
- Each evening trucks arrived at the Trades Hall to offload the day’s cash collections from various government sources, with public servants carrying bags of notes and coins into the basement, so that over the next month it came to hold £2 million ($140m). Trains transported the cash from country areas. Stone reports that not a threepence was not accounted for, there was no theft or misappropriation.
With the Federal Government’s payment of NSW interest far exceeding income, such that at the end of April there had been £1 collected for every £8 owed, Lyons (below) and his government cranked it up a notch. Whereas the previous decrees had enabled confiscation of NSW moneys, a new decree, Decree 42, required NSW public servants to hand to the Commonwealth all money coming into their departments, together with the accounting records, upon threat of up to 3 years imprisonment for failure to comply.
On 21 April 1932, 50,000 people gathered at the Sydney Town Hall for a rally. When Lang came to the podium he was met with an ovation and a chorus of “For He’s a Jolly Good Fellow.” The meeting resolved that Lang was right.
The crisis deepens:
Decree 42 effectively required NSW public servants to send to Canberra for application to British interest payments all income due to, or receivable by, the NSW government, thereby taking away the very funds from which those public servants were supposed to be paid.
Lang’ response to Decree 42 was a directive provided to all NSW public servants on 10 May that read in part:
As forced labour without payment by the Authority who would use such forced labour, or in other words, slavery, has been abolished in the British Empire for over 100 years and as the first charge on revenue in every civilised community is the payment of those who collect the revenue for Government, it is the decision of Cabinet for the guidance of, and as an instruction to, all servants of the State and State Statutory Bodies, in order that the essential and social services of the State of New South Wales may be carried on, that the method of collecting revenue and paying same shall be as outlined in the Treasury Circular of 13 April…
Public servants were the meat in the Commonwealth/State sandwich, left in a quandary as to which government to obey.
One such public servant, Robert Beardsmore, a decorated and wounded WW1 veteran and a department executive in the NSW Department of Lands, considered the matter and decided that he was obliged to follow the Commonwealth’s Decree 42. He directed the department’s staff to end all revenue to Canberra, the only departmental executive to do so. On 11 May he wrote to his superior:
Placed in a very difficult position, in which loyalty to the State conflicts with my obligation to obey the law, my clear duty, as I conceive it, is to obey that law and pay any moneys in the manner directed by the Proclamation.
His instruction to the staff was immediately reversed and he was directed from on high, namely by the Minister, to take leave. It was commonly felt by those associated with Beardsmore, and by Beardsmore himself, that he was about to be sacked.
Lang had his own plan to raise money to enable him to remain in power: the Mortgages Taxation Bill under which all mortgages within NSW would be taxed a flat charge of 10% on the value of the loan. If not paid within 2 weeks, the penalty would be doubled. Default in payment would result in having the lender’s rights forfeited to the government. The government had the right to enter in and upon premises for search and seizure of documents, resistance being a criminal offence. Lang admitted that many parts of the bill were deliberately copied from the Financial Agreements Enforcement Act 1932. Discretion was given to the Treasurer, Lang himself, to grant exemptions, for instance to lenders of small loans or small investors.
It was an outrageous proposal that struck at the sector of society that already intensely distrusted and disliked Lang.
In support of the Bill, Lang told State Parliament on May 10:
A feature of the tax is that it is not an impost upon industry, but is in the nature of a levy on the wealthiest section of the community…they are a section which should not hesitate to exhibit a little patriotism by making a reasonable contribution towards the rehabilitation of the State to which they, as mortgagees, are largely indebted for their accumulation of capital. It is not asking much after all.
More than ever they were convinced of Lang’s communist beliefs and intentions and more than ever they called upon Sir Philip Game to dismiss him.
Ironically, the beginning of May also saw the Sydney Morning Herald reporting on the numbers of ermine, white fox, mink, squirrel and sable wraps and coats observed at Her Majesty’s Theatre at the beginning of the opera season. Extreme poverty, unemployment and desperation existed side by side in NSW with affluence and opportunism. The disdain of, and past laughter at, Jack Lang by the affluent had disappeared. They now feared and hated him, for what he had done, was doing and might in future do.
The threat of civil war:
The various events of May were moving towards a confluence that would have far reaching immediate and long term significance for Australian society.
It is also the closest that Australia has come to experiencing a civil war.
With the crisis deepening, Eric Campbell (below) and the New Guard also added their tuppence worth, offering assistance to the Federal Government in a telegram to Joseph Lyons:
In case of emergency the New Guard will unreservedly place its entire resources at the disposal and under the control of the Commonwealth Government. Any number of thoroughly trustworthy, reliable men, highly organised in units under known commanders, will be ready on two hours’ notice day or night.
In response to the New Guard, the trade union movement called for the formation of a labour movement defence corps for the “fight which is impending”.
Lang himself never spoke of the threat of violence or the risk of civil war, but did say in State Parliament on May 10 in support of the Mortgages Taxation Bill:
Like France, New South Wales has been invaded by neighbouring states. Only one of two courses can be taken with an invader - he must be either paid out or thrown out. I ask Parliament to pass this bill so that we may first of all try the method of paying them out.
His words suggested that the use of force remained a viable option to the State in dealing with the Commonwealth.
This was consistent with a growing assumption that the political impasse would result in violence.
The Federal Government at the time had only a dozen uniformed Federal constables in Canberra and about 2 dozen appointed auxiliaries. It would be able to call in the army in the event of violence or revolt, although the army was, at the time, a greatly depleted force. In his later memoirs, Lang stated that it was a possibility that the Prime Minister may have asked Britain to send troops.
Military intelligence was seriously concerned about the loyalty of the NSW Police Force to Lang and the NSW Government in the event of escalation of the conflict, possibly leading to outright violence. In communications on 6 April the situation had been described as “potentially very dangerous”.
The Department of Education website dealing with the events of the Lang dismissal contains a detailed analysis of those events, including a section dealing with the concerns about violence and revolt. I quote from that section:
In May 1932 arrangements were made for naval personnel to be stationed and armed outside various government buildings including the GPO and Commonwealth Bank in Martin Place, the studios of 2BL and numerous city and suburban telephone exchanges. Troop movements were uncomfortably obvious. All leave was stopped. Special arrangements were made for securing arms and ammunition by storing locks and bolts in the vaults of the Commonwealth Bank head office and branches. Tanks were observed rumbling through the back streets of Randwick. In April 1932 a direct telephone link was installed between Victoria Barracks, Garden Island and Customs House where the IB had its offices to facilitate emergency communications. In early May 1932 residents of Richmond noticed a hive of activity at the RAAF aerodrome, in particular the fitting out of a number of motor lorries with barbed wire and machine guns. The commanding officer at the Richmond RAAF base, Wing Commander W.D. Bostock, told his men that a recent conference of senior service commanders had heard representatives of the prime minister express concern 'about how the NSW Police Force might act in the event of an eyeball to eyeball confrontation between Commonwealth and State'. It had been agreed that the services should be ready to adopt a police role. At the cost of £2500 per month Sir George Pearce wanted an additional navy destroyer to be held in reserve in the vicinity of Sydney to 'constitute an effective way of dealing with any emergency that may arise'.
Draft instructions were being prepared for the declaration of martial law. The adjutant-general had prepared a submission calling for the imposition of martial law on 9 May 1932. Major General Bruche had compiled a similar memo for the attorney general's department. On 12 May, Pearce placed the matter before the acting attorney-general, A.J. McLachlan. On the same day Bruche left Melbourne for Sydney 'on department business' that conceivably entailed supervision of the mobilisation of the armed forces.
There was, however, to be no military junta.
Throughout April 1932 large squads of police drilled in the early morning at suburban parks and ovals. The climax of the political message Lang was expressing occurred on 29 April when a parade of 1500 policemen filed through the streets of Sydney. The Labor Daily on 30 April displayed a most uncharacteristic pride and regard for the police force, describing this event as the march of 'The Army of Democracy and Decency'.
In view of 'the possibilities of local disorder' steps were taken to ensure that the nation's capital was safe from Lang's Goulburn Street 'gangsters'. At the personal request of the prime minister, whose equilibrium was no doubt disturbed by a number of death threats and who spent the period of crisis on the verge of a nervous breakdown,33 the Canberra and Bungendore troops of the 7th Light Horse were detailed to attend an eight-day camp on the outskirts of Canberra, giving the impression that they were engaged in routine exercises but they were in fact on constant alert lest their services be required to defend Parliament House and Commonwealth administrative offices.
In addition, Major Jones, in his dual capacity as director of the IB and Commonwealth/FCT police commissioner, organised a force of 200 peace officers to swell the ranks of the local constabulary. Scientists employed by the Commonwealth Scientific and Industrial Research Organisation, public servants, former Duntroon Royal Military College personnel, footballers and cricketers, all enrolled. The Defence Department assigned a cache of revolvers and a large quantity of ammunition. The Victorian Police department provided 75 wooden batons. A Lewis machine gun was earmarked for the use of Duntroon graduates. Complicated arrangements were set in place to ensure that other government officials, first the secretary of the Prime Minister's Department and after him the solicitor-general, could stand in for Jones, the linchpin of Lyons's peace officers, should he be absent, wounded or killed in battle.
On Friday, 13 May 1932 - Black Friday - the Mortgages Taxation Bill was passed after an all night and all morning sitting. The Bill now only required royal assent to become law.
Since his appointment as Governor of New South Wales and his arrival 3 years earlier, on 29 May 1929, Sir Philip Game had clashed with Lang a number of times, causing him to both contemplate dismissal and call for Lang’s resignation a number of times. On the last occasion when he had called for Lang’s resignation he subsequently relented and apologised
Subsequently both Game and Lang developed a grudging respect for each other.
In his communications with London, Game frequently correctly assessed situations and the character and motivations of Lang, cautioning the Dominion Office not to necessarily believe the newspaper accounts or the criticisms of Lang’s opponents.
Sadly for Game, his wife and their children, they came under increasing hostility and abuse for Game’s unwillingness to dismiss Lang and his failure to accede to more and more calls to do so. Such calls came from the well to do and the Federalists, the same people who froze Game and his family out of Sydney society and its social functions.
On 23 April Game had written to the Under Secretary of State in the Dominions Office in London:
Strong Press and public pressure has been brought to bear on me during the past fortnight to dismiss Ministers though the best responsible opinion expressed privately, but not publicly, disagrees. I feel it far better that the Commonwealth and State Governments should decide the quarrel without my intervention, but my hand may be forced by the issue of the legality of Ministers' actions . . .
I feel it quite clear I cannot dismiss Ministers because their action offends my own and other people's sense of public integrity, however much warrant there may be for this opinion.
I am not so clear however, as to whether I can do so on the grounds of the illegality of administrative acts which do not require my signature, or whether by doing so I should usurp the functions of the Courts. I am reporting this information only and not for advice but should you wish to make any comments I shall of course be glad to receive them.
A draft reply that suggested that determination of illegality was best left to the courts, that dismissal was a grave step and unwise, was never sent. The cautious reply also advised that if the legality of any action was settled by the judiciary and ministers continued to act illegally, the position would, 'of course, require further consideration'. It is not known why the reply was not finalised and sent.
Game received advices from authoritative sources that the situation was critical. The Honourable Sir Langer Owen, a judge of the New South Wales Supreme Court, advised him, 'I fear that this unhappy State of ours is very close to revolution'. On 17 April 1932 Billy Hughes warned the Governor that “The Auckland riots are a beacon light warning shipping out from a dangerous coast. As Your Excellency knows I do not believe Australia is likely to try the short and bloody way out of its troubles. But if the Conference agrees to a reduction of wages, the temper of the people will be ugly. And anything may happen.
Game was, as he put it, 'between the deep sea and the devil'.
On 12 May 1932, Game had received a letter from Robert Beardsmore, the senior public servant who had acted according to his conscience in instructing for funds to be sent to Canberra and who, as a consequence, had been forced to take leave with his career in the balance. Beardsmore pointed out that he had acted in accordance with a lawful directive of the Commonwealth Government and had, as a result, been forced to take enforced leave.
On the afternoon of 12 May, Game sent Lang a letter:
Dear Mr Lang,
It appears to me that the terms of [your] circular direct public servants to commit a direct breach of the law. I feel it my bounden duty to remind you that you derive your authority from His Majesty, through me, and that I cannot possibly allow the Crown to be placed in the position of breaking the law of the land.
I must ask you, therefore, either to furnish me with proof that the instructions in the circular are within the law, or alternatively to withdraw the circular at once. I do not wish to press you unduly, but the matter appears to me to be of an urgency which admits of no delay, and I must ask for a definite reply by 11 am tomorrow, 13 May.
Stone points out that in the absence of directions from London, with no experience in constitutional law, Game was also operating within a framework where there was no clear guidance from any regulations or other authority. There was only one sentence to guide him, a sentence in Clause VI of the Royal Instructions to a Governor, the closest thing to a code of conduct for someone in his position:
In the execution of the powers and authorities vested in him, the Governor shall be guided by the advice of the Executive Council [inner circle of cabinet ministers]; but if in any case he shall see sufficient cause to dissent from the opinion of the said Council, he may act in the exercise of his said powers and authorities in opposition to the opinion of the Council.
Stone further comments that the governor’s extraordinary power to destroy a democratically elected government rested on the above two non-defined words - sufficient cause - whereas a training manual used a hundred times that many to define what constituted a polished boot.
In contrast, the King no longer had power in Britain to overrule his elected ministers or to dismiss a government.
The Mortgages Taxation Bill had been passed in the Upper House at 6.45am on 13 May. Game’s deadline stipulated that he required a response by 11.00am on 13 May.
Lang had a number of options open to him including:
- To seek an extension of time to obtain legal advice in respect of Game’s requests and stipulations.
- Withdrawal of the circular in that the Mortgages Taxation Bill would now provide other sources of income. Certainly Lyons would have challenged the Act and Game may have refused to assent to it but Lang would have been in a strong position.
- Tendering his resignation, seeking a dissolution of parliament and remaining as a caretaker government, thereby fighting the election with the resources of the government.
Lang did none of the above. Stone considers some possibilities as to why Lang reacted as he did - exhaustion, befuddled thinking - but for whatever reason, Lang sent a short note to the Governor:
Dear Sir Philip
I received your letter on the 12th instant at 6 pm and must say that it is hard to understand how you do not wish to press me unduly and yet insist on a definite reply by 11 am on the 13th instant.
The circular of which you do not appear to approve represents the decision of cabinet and no doubt was arrived at after consideration of the primary duties of maintaining the essential and social services of the State.
The only reply that you can be given is that the circular cannot possibly be withdrawn.
John T Lang
In effect the Big Fella told the Governor to go to Hell.
Game replied immediately:
You will, I’m sure, realise that I cannot allow the matter to rest where it is. Before considering what further action I may feel bound to take, I should prefer to discuss the whole position with you.
Lang knew a dismissal was on the cards. He could still have followed one of the alternative options open to him but again chose not to do so.
Lang later stated that the thought occurred to him that if he thought Game was acting illegally, he could have had him arrested. Ultimately he chose not to follow that route but the Commonwealth armed forces were put on alert nonetheless.
Lang attended at Government House as requested where he and Sir Philip engaged in conversation. Lang maintained his ground and his position.
Following the meeting, Game wrote to Lang:
Dear Mr Lang,
At our interview this afternoon you requested me to communicate my views by letter.
Your case, as I understand it, is that Ministers are determined on their action in order to carry on the essential services of the State.
Into aspects of justification it is not, as I conceive it, my province to inquire. My position is that if my Ministers are unable to carry on essential services without breaking the law, my plain duty is to endeavour to obtain Ministers who feel able to do so.
As I have already pointed out to you in my letter of the 12th instant, it is impossible for me to put the Crown in the position of being party to an illegal action.
If Ministers are not prepared to abide by the law, then I must state without hesitation that it is their bounden duty, under the law and practice of the Constitution, to tender their resignation.
I await an early reply, as I am sure you will agree that the present position cannot be allowed to extend over the weekend.
Lang wrote back immediately:
If your letter of today’s date means that you are requesting the resignation of Ministers, you are hereby informed that your request is refused.
The Governor was in effect told to go to Hell a second time in the one day.
Game also responded immediately:
Dear Mr Lang
Your letter informing me that Ministers are not prepared to tender their resignations has just reached me. In view of this and your refusal to withdraw the circular, I feel it my bounden duty to inform you that I cannot retain my present Ministers in office, and that I am seeking other advisers. I must ask you to regard this as final.
This time Game had told Lang to go, if not to Hell then certainly from government. Lang and his government had been dismissed.
Lang later referred to his dismissal as being by virtue of the assassin’s dagger. As Lang left the Premier’s Department a short time later he said to a reporter from the Sydney Morning Herald:
“Well, I am sacked, I am dismissed from office. I have attempted to do my duty, but now I must be going. I am no longer Premier, but a free man.”
As he left his office, his staff lined up to say goodbye.
No words were spoken. He stopped in front of each, from senior officials down to the junior office boy, and looked each in the eye as he shook their hands.
Most of his Ministers and parliamentary colleagues learned of the dismissal when they read the evening papers.