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Hugh Morgan, The Australian, August 22, 1991, p. 12, as a letter to the editor.

Two important articles were published on August 13. The first was by Alan Wood in The Australian, in which he discusses the argument being advanced by Jeff Schubert of the Hong Kong Bank, and endorsed by Professor Fred Gruen, concerning the inability of central bank control of the monetary supply to achieve low or zero inflation without destroying the capacity of the economy to generate full employment and rapid growth.

The second was Paul Keating’s apologia, published in The Age and The Sydney Morning Herald, defending his record of lever-puller extraordinaire during his incumbency as Commonwealth treasurer. This article has since become another element in the ongoing leadership struggle between Prime Minister Hawke and Mr Keating.

Both articles take our existing monetary institutions and their interest rate manipulations for granted. Alan Wood’s article raises as a central issue the consequences for exchange rates of the New Zealand Reserve Bank’s interest rate policies and the effect of these exchange rates on the New Zealand economy. These concerns apply just as cogently to the Reserve Bank of Australia and our exchange rates in recent years.

Mr Keating seeks to defend the effectiveness and propriety of monetary lever-pulling generally and his own record as a lever-puller in particular. No one doubts the former treasurer’s energy, intellectual capacity, or ambition to succeed in his career. Most people know acknowledge, however, that under his administration we have had one of the most violent periods of boom and bust in Australia’s history. A fast forward replay of Australia’s yield curve over the past eight years tells us why we have had such a rollercoaster ride.

It is not unreasonable, in the light of this experience, to conclude that if Paul Keating cannot get it right, then probably no one can and that we would be very much better off if the Government forswore its arbitrary price fixing of interest rates and gave up its monopoly over money supply.

We need a far reaching debate on how these things can be achieved with minimum dislocation. But before we can embark on this debate we require mea culpas from those economists, public servants and politicians who have built their careers upon the theory and practice of monetary lever-pulling, something which is possible only because of the Government’s monopoly in this business.

H. M. MORGAN
Melbourne