MoneymenThe Money Men – Australia’s Twelve Most Notable Treasurers

By Chris Bowen

Melbourne University Press 2015

ISBN: 9780522866605

RRP – $34.99

Reviewed by Ed Shann


Chris Bowen’s new book The Money Men is refreshingly different in largely avoiding the usual politicians’ paeon of praise about their own track record and claimed triumphs.  Still it is disappointing in not delivering as many insights as it should. He discusses twelve Australian Federal Treasurers to see what lessons can be learnt that could make him a better Treasurer. The Treasurers chosen “are not the best, not the worst, but the most interesting”.

Each chapter covers a different Treasurer and Bowen rates Paul Keating the best, with honourable mentions to Earle Page, Ted Theodore, Artie Fadden, Bill Hayden, Peter Costello and Wayne Swan. Personally, I would rate Costello second best and delete Swan from the honourable mentions. Jim Cairns would get my prize for the worst Treasurer and, as I was in his office, I had a bird’s eye view.

The book disappoints in failing to analyse how the Treasurer’s role has changed over the last century and its claim that Keynesian budget fine tuning is vital to manage the economic cycle. The final chapter on Wayne Swan is disappointing because Bowen is a current player and so a balanced analysis is impossible.

Bowen concludes that an effective Treasurer needs to be in partnership with his Prime Minister, but must also push a reform agenda, both internally and in public. Treasurers need wisdom rather than qualifications and must work closely with Treasury. A good Treasurer will neither be captive of Treasury, nor ignore it. That is all true as far as it goes, but is hardly earth shattering.

What the book ignores is that early Treasurers were really bean counters and it was only in the 1930s that federal Treasurers became involved in economic policy formulation and implementation. The role of the federal government and the Treasurer expanded markedly during and after the Second World War, helped by the growth of Keynesianism and the recruitment by Treasury of trained economists, rather than mere book keepers.

The role of the Treasurer has changed markedly again in the last 40 years. We now have a Minister of Finance. A good Minister of Finance, as Peter Walsh showed, can play an important role in spending restraint that frees up the Treasurer for broader policy decisions. A strong Finance Minister and Department make a Treasurer’s life easier.

There is now an independent Reserve Bank running monetary policy and the floating exchange rate makes interest rate changes a powerful policy tool. This has reduced the ability of Treasury to attract top economists as the centre of short term demand management has shifted to the Reserve Bank, which is no longer subservient to Canberra. It means that except in a major crisis the prime responsibility for short term demand management no longer lies with the Treasurer. Bowen does not seem to understand that while a Treasurer controls budgetary policy, it can become ineffective or even perverse if in conflict with the monetary settings determined by an independent central bank. An expansionary budget policy offset by a tight monetary policy forces up the exchange rate.

Bowen also ignores that large Ministerial offices now play a major policy role. An effective Treasurer needs experienced advisors in the office, with a working relationship with the Department. John Howard had John Hewson and Keating had Tony Cole, Don Russell and Ken Henry from Treasury, who went on to be Departmental heads. Keating needed a lot of support when he started as Treasurer and he had it from an outstanding office. The Treasurer’s (or Prime Minister’s) office can isolate the minister if it is badly run, or has inexperienced staff with little knowledge of the public service, as recent experience underlines.

The Treasury itself is no longer a dominant institution attracting the nation’s best economists. In fact it now lacks many of the skills needed to formulate policy successfully, particularly given the increased importance of supply side policies. This means independent public inquiries using outsiders, or the Productivity Commission, need to be used more often to formulate effective policies. It also underlines the importance of Treasurers consulting widely and listening to a wide range of advice.

The weakest part of the book is Bowen’s emphasis on short term demand management using budgetary policy. He dismisses the use of interest rates as being too slow when acting in a crisis. In the normal course of events, gradual and flexible adjustments in interest rates is safer and more effective, particularly when run by an independent Reserve Bank free of political imperatives. Lower rates help reduce the exchange rate, while using budget deficits means a higher exchange rate and loss of competitiveness.

Even in a crisis, budget spending on useful infrastructure takes time to deliver and it can be hard to turn off. Ken Henry’s desire to go hard, go early and go to households should have added, go temporary. One off welfare payments and temporary tax changes are automatically reversed. They do not linger on and persist when not needed and so blow out the deficit unnecessarily down the track as just occurred.

The discussion of Ted Theodore in the 1930s is controversial and while Bowen’s view is supported by some economic historians it does not discuss alternative views. Bowen argues Theodore adopted the Premiers Plan, which he claims followed the recommendations of the Bank of England’s Sir Otto Niemeyer and was a pre Keynesian austerity package that exacerbated the Depression. Bowen considers Theodore a Keynesian, who was ahead of his time, but forced to adopt austerity by conservative banks and the opposition.

As Alex Millmow’s excellent “The power of economic ideas” outlines, implementation of the Premiers Plan was preceded by devaluation in early 1931 (which Niemeyer opposed) which allowed some loosening in monetary policy. The Plan involved cuts in internal interest payments on public loans and more gradual reductions in deficits financed by Treasury bills than Niemeyer supported. Of course it also included budget and wage cuts, though the 10 per cent cut in nominal wages probably did not cut real wages by much in practice given falling prices. Because of falling export prices, Australia was hit harder than either the UK or Canada in terms of lower national income. The options were limited given the terms of trade halved and Australian public debt reached 200 per cent of GDP in the early 1930s, so Australia could no longer borrow overseas.

The non-Treasury economists (including my great uncle Edward Shann) who formulated the Premiers Plan knew living standards needed to fall and were trying to spread the pain. They combined budget cuts, so the package could be sold as responsible, with some admittedly limited stimulatory measures, with devaluation central. The package helped restore conservative business confidence. The fall of 25 per cent in the $A during 1931 saw a recovery in Australian GDP that was earlier than in most countries. Australian policy was a realistic response to the crisis given a swing into large debt financed budget deficits was probably not practical. The London capital market was closed to new Australian borrowing and Australia had a balance of payments constraint.

Similar to the Niemeyer package, recent Greek austerity relied on budget cuts with a fixed exchange rate. That is very different from the Premiers Plan which was preceded by a large $A depreciation which allowed some (inadequate) relaxation of monetary policy. Theodore was unable to get through his original expansionary budget proposals, but the package he did get through did not exacerbate the economic downturn as some claim, as the recovery got underway in 1931. He therefore deserves credit for implementing a package that helped recovery, even if his original plan was never adopted. When unemployment persisted in the 1930s, the economists involved argued unsuccessfully for further expansionary measures including a larger devaluation and public investment, but by then Theodore was long gone.

Jim Cairns has to rank as Australia’s worst Treasurer and as Bowen says despite his economic qualifications he was not interested in administration, chose his staff badly and cut himself off from alternative advice, including his own Department. Bowen accuses senior Treasury officials of leaking to the Opposition on the Loans Affair, but who did the leaking is unproven and Bowen offers nothing that justifies the claim. I can think of other possibilities. In contrast, Bill Hayden was a fine man who took advice and for me was a relief when acting Treasurer while Jim Cairns was overseas. Hayden inherited a mess and was Treasurer for too short a time to leave a real mark in that role.

The Whitlam government underlines the importance of the Prime Minister in determining how well a Treasurer can perform. Bowen claims the Whitlam government had a laudable record. While it left a lasting legacy, its economic impact was appalling. I doubt even Hayden, if he had been Treasurer earlier, could have prevented all of the excesses, given Whitlam’s preoccupation with implementing the program on first getting office. Even a good Treasurer depends on having a supportive Prime Minister if he is to be effective.

As Bowen correctly says, Bob Hawke and Paul Keating were an effective team with different skills in transforming Australia into a more outward looking economy. It is a tragedy that their outstanding track record is now marred by bickering over who did what. However, it is perhaps inherent in politics that tensions and differences will eventually mar even effective partnerships. The chapter on Keating has clearly relied heavily on Keating’s view of events, but he is undoubtedly Australia’s outstanding Treasurer.

Peter Costello is given credit by Bowen (along with Prime Minister John Howard) for delivering the GST when his predecessors failed. Bowen also approves of the changes to bank prudential supervision and the banning of major bank mergers, which helped greatly in the Australian banking system avoiding the financial fallout suffered elsewhere in the GFC. Australia role in the Asian crisis in challenging IMF prescriptions for Indonesia is also rightly praised. Costello should be given more credit than Bowen gives him for formalising the independence of the Reserve Bank, as this provided a major ongoing improvement in the policy framework.

Bowen is also reluctant to give Costello much credit for paying off public debt (admittedly mainly by selling assets) and in setting up the Future Fund, while delivering tax cuts as well as a budget surplus. This allowed the federal government to run deficits and guarantee the banks when a shock came, while retaining a top credit rating. Of course, the times were good and Costello could surf the waves, but a worse result was certainly possible. Costello was not a policy path breaker like Keating and some consider him arrogant and lazy, but he was a safe pair of hands that left Australia in good shape. I would rank him second to Keating in the modern era.

The chapter on Wayne Swan is mainly a defence of the budget stimulus and dismisses the role of the China boom in helping rescue Australia. Australia did well to avoid recession, but the policy excesses need to be remembered. The stimulus was too large and lasted too long. Bowen skates over the implementation disasters of that stimulus, the mining tax and the carbon tax and the flawed policy processes involved. He ignores the inability subsequently to rein in spending and in fact the locking in by the Labor government of huge unfunded spending time bombs down the track in education, health, NDIS and the NBN.

Swan failed to focus on policies that would improve Australia’s long run economic performance and gave too much emphasis to redistribution rather than stimulating growth. What he did do was often badly thought out and delivered. Swan should get credit for the first budget stimulus package which was largely temporary, but so should Hawke and Keating for creating a more flexible economy better able to respond to crisis and Costello for leaving the budget and debt levels in such good shape. The monetary response of the Reserve Bank helped stimulate activity as well. The China boom added icing to the cake. There were many fathers to Australia’s good performance.

Bowen’s emphasis on the importance of Keynesian budget demand management is wrong. In normal times, interest rate changes implemented by the independent Reserve Bank are better. Interest rate policy is more flexible and does not perversely distort the exchange rate. The role of the Treasurer in normal times should be to focus on supply side reforms and achieve budget balance over the cycle. Supply side reforms can both boost productivity and living standards and make the economy more resilient in the event of shocks.

The reforms of the Hawke/Keating years helped not only lift economic performance at the time, but they increased the flexibility of the economy in dealing with future shocks. There is still more to be done in reforming tax, the Federation and competition policy and winding back the budget deficit. We need to increase further the flexibility of the economy and the ability of people and resources to move into their most efficient uses. A good Treasurer needs to consult widely and listen to advice from a variety of sources. Like Keating, he needs to be able to put sound economic policies into a politically saleable package, both to persuade his colleagues and then the public.

If he is to be an effective Treasurer Chris Bowen needs to think more deeply about his role than this book does. This is still a readable and stimulating book, but it could have been so much better.

Dr Ed Shann is an economist who worked in Treasury and the Department of Prime Minister and Cabinet in the 1970s and early 1980s before moving to the private sector. He had some personal contact with half the Treasurers covered in this book.


William Coleman, Selwyn Cornish and Alf Hagger, Giblin’s Platoon, ANU E Press 2006.

Chay Fisher and Chris Kent, “Two Depressions, one banking collapse”, RBA Research Discussion Paper 1999-06, June 1999.

R G Gregory and N G Butlin (editors), The Depression: Australia and the world economy in the 1930’s, Cambridge UP, 1988.

David Gruen and Colin Clarke, “What have we learnt about the Great Depression from the perspective of today?” Treasury speeches, November 2009.

John Hawkins, “Ted Theodore: the proto-Keynesian”, Treasury Economic Round-up, Issue 1, 2010 pp91-110.

Ian McLean, Why Australia prospered, Princeton 2012.

Alex Millmow, “The power of ideas”, ANU E press 2010.

Simon Ville and Glenn Withers, The Cambridge economic history of Australia, Cambridge UP 2014.