Fraser, Savage and Nash (1935) (Nash papers)
This two-part column is a sequel to Know your economics before you get into power, which described how in 1929 the British Labour government led by Ramsay MacDonald rejected Keynes’ economic prescription of fiscal stimulus to fight the Depression in favour of ‘the Treasury view’, as it became known.
The First Labour Government in New Zealand did not repeat British Labour’s mistake. They rejected the ‘balanced-budget’ dogma in favour of public works, spending on social services and a major extension of the welfare state with the passage of the Social Security Act in 1938.
Why was New Zealand Labour different? To some extent it was probably a case of learning from MacDonald’s mistakes, especially since Labour did not come to power here until in 1935. Even so, the New Zealand Labour Party (NZLP) seems to have come to a rejection of the ‘Treasury view’ far earlier than the British Labour Party.
I would argue that this reflected primarily a willingness and ability on behalf of the leadership of the NZLP to understand and engage with economic theory and debates.
The NZLP had been very lucky with the calibre of men (they were all men) in those top roles. The historian Keith Sinclair has written that Walter Nash, Peter Fraser and (Savage’s predecessor as Labour leader) Harry Holland all “read very widely in political and general economic literature”, adding, “There were few people in New Zealand as well read as these unschooled men.” (Sinclair, p. 71). Sinclair also described how Nash, the financial spokesperson, was close friends with and sought advice from a handful of top New Zealand economists including A.G. B. (Allan) Fisher of Otago University (Nash was best man at his wedding; pp. 79-80).
Michael Joseph Savage too was well-read on economic issues. His biographer Barry Gustafson notes that he was citing Keynes as early as 1925 and 1927, and his speeches continually emphasised the idea of ‘underconsumption’ as an economic ill (“He insisted that the root cause of the economic crisis was a lack of purchasing power in the domestic economy”) (Gustafson, pp. 144-5). The ‘underconsumption’ diagnosis is now most associated with Keynes but it had also been advanced by others Savage had read such as John A Hobson, an English economist who went on to become a strong critic of MacDonald’s 1929 government. (Hobson also influenced Edward Bellamy, whose Looking Backward: 2000-1887 was very popular with the New Zealand Left.)
As a result of this, the NZLP’s economic policy was carefully developed. Bassett and King write in their biography of Fraser (p. 123):
As he travelled about the country Nash’s speeches revealed a fine mind wrestling with the conundrums generated by steady deflation. By 1931, with the help of Fraser and Savage, he had drafted the essentials of a financial position. This was further refined over the next two years. The policy called for government planning to ensure there was enough purchasing power in everyone’s hands so people could buy the abundance of goods and services available in New Zealand.
The strength and coherence of their thinking was honed not only by arguing against the financial orthodoxy of the day, but also from defending their prescription against alternative strategies being put forward on the Left. Chief amongst these were the Social Credit theories of C. H. Douglas, which had a number of adherents in the Labour caucus, most notably John A Lee:
They believed that once the Reserve Bank had been nationalised in April 1936, all that had been needed to fund social reforms was a Minister of Finance with enough strength to turn the handle of the printing press . . . Since 1929, when [Fraser] fought to bring Nash into the Labour caucus, the two of them had opposed social-credit tendencies. (Bassett and King, p. 148)
The ‘credit men’ claimed that Fraser and Nash had (like MacDonald) been too orthodox. Similiarly, though from a very different perspective, the economic historian (and architect of the Fourth Labour Government’s tertiary reforms) Gary Hawke argues that, “In the economy, 1935-8 were years mostly of continuation of earlier policies in more favourable conditions.” (Prominent leftwing economist Bill Sutch, who served under the previous Finance Minister, Gordon Coates, also gives him credit as a precursor to the NZLP’s reforms.) Hawke adds, “It was the response of the Labour government to an exchange crisis in 1938, rather than its election in 1935, which marks a significant change in economic management in New Zealand.” (Hawke, p. 161; Sutch, pp. 37-50.)
Whether any or all of these judgments about Labour’s first term were correct is less important, for our purposes here, than the fact that when the pressure went on in 1938, its leadership responded by becoming more rather than less willing to intervene. In part this would have been because they had developed an economically-literate rationale for their actions.
It is, however, worth canvassing two other possible factors. One is generational, the other cultural. We look at each in turn in part two, tomorrow.
Further Reading:
- Michael Bassett and Michael King, Tomorrow Comes The Song: A Life of Peter Fraser (2000).
- Barry Gustafson, From the Cradle to the Grave: a biography of Michael Joesph Savage (1986).
- G. R. Hawke, The Making of New Zealand: An Economic History (1985).
- Keith Sinclair, Walter Nash (1976).
- W. B. Sutch, Colony or Nation? Economic Crises in New Zealand from the 1860s to the 1960s (1966).
Tags: Harry Holland, John Maynard Keynes, Michael Joseph Savage, Peter Fraser, Ramsay MacDonald, Walter Nash
I hadn’t realized that Sutch’s career started under Coates. Learn something new everyday.
It is interesting, and an obvious point that I never considered, that the key to the actions of the First Labour Government was able to act on policies because of their confidence in their economic policies.
Looking forward to your next piece on this.
P.S. Great photo – when you write Nash papers, do you mean the Nash papers in the Alexander Turnbull Library?
Thanks Sean, and, yes, the idea that a knowledge of economics can make a progressive govt bolder, rather than (as is often assumed) more conservative, is a key theme here, and was also raised in the earlier post (‘Know your economics before you get into power’) linked to above.
The photo’s from Sinclair’s bio of Nash; he references them as ‘Nash paper’ but yes I imagine they would now be in the Turnbull. It’s a detail from a larger picture of the full 1935 Cabinet.
[...] « What made New Zealand Labour different? (part one) [...]
The photo’s from Sinclair’s bio of Nash; he references them as ‘Nash paper’ but yes I imagine they would now be in the Turnbull. It’s a detail from a larger picture of the full 1935 Cabinet.
In that case, I guess 1979 was long ago and they did things differently there. According to today’s standards, Sinclair didn’t referenced the photo right, and he has cropped it significantly, which is something that isn’t really what we do now.
This is where Sinclair must have got the image. If you want to see the original, click on the link titled ‘link to archived copy’.
Don’t under-estimate the influence of the Labour women of their era. Peter Fraser’s wife Janet was one of many intelligent, highly political and well-read Labour women who were right there from the founding of the Labour Party. But remember, although women had fought hard to win the right to vote in 1893 they had to fight for another couple of decades to be allowed to stand as candidates. So they organised and lobbied behind the scenes, and of course have been largely lost to history. But the men (even Savage, who never married) would be nothing without the women who cooked, cleaned, organised and supported them personally and politically.
Good point Hilary – thanks!