A Democratic Nation: Identity, Freedom and Equality in Australia 1901–1925

By David Kemp

A Democratic Nation: Identity, Freedom and Equality in Australia 1901–1925 tells the story of the political battle after Federation to achieve unprecedented levels of social and economic equality, while preserving both national independence and individual freedom.

As the third book in a landmark five-volume Australian Liberalism series, A Democratic Nation shows how Australians, inspired by the exceptional democracy they had achieved, set out to perfect its principles while protecting it from a world they saw as increasingly threatening.

The period saw political battles within and between Liberal and Labor parties as attempts to protect identities defined by nation, class and race confronted ideas of individual freedom and equality.

As the war of 1914–18 between the European empires gave rise to unimaginable horrors, economic chaos and continuing violence, the Australian Labor Party shattered and the Liberal Party became submerged in a new Nationalist win-the-war alliance. In peacetime it struggled to restore the nation’s social and economic health under the weight of pre-war and wartime identity-based policies.

Throughout years of divisive political conflict, the Australian people would remain largely faithful to their hope of a land that would give them freedom to chart their own destinies, and would resist the siren calls of those who promised a conflict-free world by the use of centralised power to reconstruct the industrial and social order.

• Language: English
• Publisher: Melbourne University Publishing Ltd
• Release date: Nov 19, 2019
• ISBN: 9780522873474

Book preview

nation.

1

Liberalism divided

THE LIBERALS DID not gain any greater sense of common purpose from their achievement in bringing the new nation into existence. Although united in their determination to see Australia succeed as a nation based on democratic and humane values, they differed profoundly over the role that government should play to achieve this objective.

The principal political division was, on the one hand, between those who trusted government less and emphasised liberty and equal rights under law as the basis for a competitive Australia open to the world and, on the other, those who believed government could safely be used to create less competitive, more regulated markets and favoured the closure of the nation to racial, cultural and economic competitors. Both sides claimed that their strategy for national development was the most humane and would benefit the least advantaged most of all.

It would be an oversimplification to say that the conflict was between those focused on production and those who wanted government to be an active redistributor of wealth and power, or between trading and domestic industry sectors, notwithstanding that industrial interests were important factors in the debate. It was also a debate about the consequences of government actions and policies, undertaken in an era when the confident hopes of reformers were not matched by any expert understanding of market processes, of social and economic life, or of human nature.

As the Liberals attempted to understand the consequences of different taxation and regulatory policies on enterprise, invention and the rule of law, the new Labour parties, springing from the trade union movement, were themselves engaged in an escalating internal conflict. This conflict was between those who took a basically liberal stance towards the role of government, albeit skewed to the regulatory and redistributive end of the spectrum, and those who confidently advocated a utopian dream that the liberal economy based around markets, prices and private enterprise could be replaced by an administered economy in which governmental discretion would determine what was just and fair for all. As the utopians gained influence, many of the Liberals came to see themselves as the defenders of a rational, free and democratic order against socialism and the centralisation of power.

The free trade Liberals were led federally by George Reid, the reforming former Premier of New South Wales, a brilliant platform speaker and political tactician. Reid was passionately committed to democratic policies and to reversing the trend to restriction of trade and to the state regulation of the free markets in production, distribution and labour. While supporting laws to prevent exploitation of employees by employers, the free trade Liberals believed that legislation restricting trade was dividing the nation and the empire, weakening enterprise and undermining Australia’s development and the employment prospects of the working class. Their goal was an outward-looking Australia open to and trading with the world, with competitive exporting primary and manufacturing industries that would create new jobs. Such an Australia, they argued, would best foster opportunities for people to build the better lives they sought.

The protectionist Liberals were led by Edmund Barton from New South Wales and Alfred Deakin, neither as passionately protectionist as Reid was passionate for free trade. Of the two, Deakin was an orator of brilliance to match Reid, but with a social conscience largely unguided by Reid’s understanding of economic life. The principal mission of Barton and Deakin was the establishment of a new nation with liberal institutions and the pursuit of policies that would express the egalitarianism of the society that had formed.

Although they occupied the seat of government at Federation, the protectionist Liberals were on the defensive from the start as a result of the failure of protection to prevent unemployment and sweating during the depression of the 1890s, and of their admission, in the terms of the new Constitution, that free trade was the correct internal policy for the new nation. Politically, the infant Labour parties were eating away at the protectionists’ working-class base, and this was of particular importance in Victoria where the Liberal Party had relied extensively on these voters since the days of Graham Berry in the late 1870s. To preserve this base, the protectionist Liberals were equally passionate in their determination to continue using the state to set the balance, as they saw it, between labour and capital, to encourage union membership, to promote industrialisation ahead through tariffs, and more recently to attempt to use the authority of government to abolish strikes, and to push wages to the highest possible levels compatible with economic progress.

At the first national elections under the new Constitution, which took place on 29–30 March 1901, the Liberals were therefore broadly divided into two camps. As the example of America had profoundly influenced their Constitution writing, so too, it might be argued, the Australian Liberals were inadvertently following in American footsteps. The American founders had quickly split into Federalists and Republicans over unresolved issues surrounding the scope of the new federal government’s authority. Like the Americans, the Australian Liberals would be troubled by differences over the importance and value of the devolution of governmental power embodied in the Constitution but, less like the Americans, they would be especially troubled over the extent to which the state should intervene to influence or even replace the decisions of the marketplace.

Both the free trade and protectionist causes ran the risk that, with the one centred in Sydney and the other in Melbourne, the rest of the country might see the debate as merely another expression of the battle for supremacy between the two larger states. Unrepresented at either the free trade or the protectionist conferences had been those who found themselves repelled both by the special interest pleading of many of the protectionists and by what they viewed as the libertarian ideological purity of many of the free traders. One such was Bernhard Wise, one of the most influential members of the second Constitutional Convention, then Attorney-General in the Lyne government in New South Wales, the most intellectually distinguished of the interventionist Liberals but still a supporter of free trade.

At a banquet in Corowa on 1 December 1900 to recall the glorious role of the town in hosting the 1893 ‘People’s’ conference that had invigorated the federation movement, and to celebrate the coming Federation, attended also by Edmund Barton, Wise had warned of the need to defend the new Commonwealth against its ‘secret enemies’, whom he identified as the voices of provincialism:

It was a mistake to think that provincialism was dead. On both sides of the border there were ample signs that it was not dead. Both in Victoria and New South Wales there was apparently an unwillingness to recognise that the policy of any particular state could not be the policy for the Commonwealth.

When he saw extreme protectionists meeting in Victoria to insist upon a tariff being framed for the Commonwealth on strictly protectionist grounds, he asked himself did these people realise the position of New South Wales? Did they think New South Wales was going to sit down quietly while they formed a tariff to suit their personal interests? If they did that, then they mistook altogether the temper of the majority of the people in New South Wales.

When he saw equally extreme free-traders meeting to insist that in the Commonwealth there should be open ports, he asked himself whether they realised what such a thing meant to some of the protected industries of Victoria. Did they think that it was putting a strain on the Constitution that might cause very serious trouble? He asked himself whether these extremists realised that the tariff for the Commonwealth must be framed, not by the concoctors of interested tariffs in either of the colonies of New South Wales or Victoria, but by the commercial situation of the Commonwealth itself … The simple fact was that the Commonwealth tariff could not be framed on rigid free-trade or rigid protectionist lines …

He was still a free trader. Although he had been denounced as having deserted the cause, the charge was untrue, but he would be wanting in his duty and honesty if he led the people to believe that in the Federal parliament these old party cries could have the same significance as they had in local politics.¹

Wise was the Liberal whose views would most closely foreshadow the policy consensus that would come to prevail in Australia throughout the twentieth century: the combination of an activist state intervening in the labour market to rebalance business and union power within a free-trading open economy. His belief in the importance of righting the balance between labour and capital, however, had led him into an alliance with protectionists that had alienated his former free trade colleagues.

In his fear that either extreme protectionism or an extreme implementation of free trade might threaten the new Commonwealth, Wise was possibly correct. Of the two policy options, however, it was, in the short and medium term, protectionism that would gain an extreme expression in national policy, and free trade would suffer a prolonged, if ultimately temporary, rejection.

Wise’s middle ground, however, was no basis for a campaign. It was too much to ask either the New South Wales free traders or the Victorian protectionists to compromise their colonial political traditions without first experimenting with campaigns that would test the validity of their colonial policy experiences on the national stage. And there were indeed significant intellectual as well as political issues to be contested. In their appeals to the people of the new nation the leaders of Liberalism would remain divided.

Hence Barton opened his campaign in New South Wales at Maitland in the New Year declaring, moderately, and in line with Wise’s remarks, that ‘he had not come here to conduct a protectionist campaign’. Deakin was telling audiences that his program ‘embraced protection but not [trade] prohibition’. Reid would have none of that, accusing Barton of vacillating and Wise of asserting that ‘all loyal federalists should sink all the principles they possessed in order to save the Constitution’.²

In fact, Reid knew the problem he had. While he had dismantled Dibbs’s protectionist regime in New South Wales, the scale of the protected sector that existed in Victoria had already become, politically, an insuperable obstacle to a principled free trade campaign, which would indeed have threatened the destruction of the weaker protected industries. While he had criticised Wise, his old ally who had gone over to Lyne’s government in New South Wales, Reid’s actions were in line with the apostate free trader’s ideas. In fact, in the middle of the campaign, he quoted statements in favour of free trade from Wise’s book, Industrial Freedom,³ and expressed the hope that Wise ‘will have a rest for a time in order that he can take a fresh survey of his political bearings’.⁴

Notwithstanding that Reid and his party accepted that there would have to be a revenue tariff at least, the free traders would continue to fight against high protection and pursue their ideals over the longer term. He was not prepared to campaign as an advocate for direct taxation, and had dissociated himself from the Henry George single-taxers such as Max Hirsch, the German-born champion of free trade in Victoria. Even so, his political problem was clear: he would campaign against protection on the basis that he would not promise to remove it altogether. It was not 1894 all over again, and it was not a compelling appeal.

Despite their bitter disagreements on commercial policy, between the Liberal camps there were also significant areas of agreement. Deakin drew attention to Reid’s silence on ‘four-fifths of the Ministerial policy, which he had not dared to challenge’.⁵ All the Liberals were equally committed to the principles of British justice and equality under law, and to democratic representative government; among themselves, debate was about what these principles meant in practice. As the joint political parents of the new Commonwealth they were equally committed to the federal system of government and to establishment of the institutional framework under the Constitution they had drafted together and which the people had approved.

They were agreed that democracy required open debate, that parliamentarians should exercise their judgement and conscience and not be directed by outside interests. They equally agreed that democracy required that the government should provide all children with access to public schooling that was compulsory, free and secular, and that parents, churches or others who wished to set up their own schools should be able to do so but without aid from the state.

Both Reid and Deakin also believed that government could secure fairer workplaces by appropriate regulation of private enterprise. The remaining supporters of the libertarian Herbert Spencer’s absolute principle of liberty might question this, but Reid had argued and won the point with Henry Parkes when the latter had been Premier of New South Wales. A consensus had been reached that the state could properly establish the rules for business enterprise and regulate the workplace, provided these rules were clear and aimed at achievement of humane values. They were also agreed that government could provide direct benefits to the aged and invalid in the community to assist them in their time of need. Whether it should go further and insert judicial discretions into regulation of the labour market to fix wages and conditions was a matter still to be fought.

The Liberal leaders also shared the vision that Australia should avoid the racial divisions that had corroded—and almost destroyed—the American democracy they so admired, and that they should do all in their power to ensure that Australia developed as a racially homogeneous democracy without racial tensions. Reid was campaigning not only for free trade but also for the prime ministership, but he was quick to make clear that, on the matter of a white Australia, he and Barton were at one. In fact ‘the Federal ministry has taken up every item of the policy I advocated for years … When Mr Barton talks about a white Australia may I say that I had the honour of inventing that expression some years ago? … So on that subject we are delighted to find Mr Barton true to liberal traditions.’⁶

All these were matters on which they could come together. But the policy framework for trade, economic development, national growth, wealth and job creation, and the relationship of government to the business system and its intervention into the free market were matters on which they deeply disagreed.

The first prime minister

Under the system of government established by the Constitution, in a feature derived from Westminster, the prime minister would be the parliamentarian who could command the support of a majority in the lower house of parliament, the House of Representatives. Choosing the first prime minister for Australia had been an awkward task in the absence of a parliament to give a majority to anyone. The Governor-General, Lord Hopetoun, had asked Sir William Lyne, as Premier of the original colony of New South Wales, to see if he could form a ministry, with the stipulation that its members should be leading and not second-order figures in the various colonies. Lyne had not been a federationist, and in the event was unable to comply. He informed Hopetoun and advised the Governor-General to send for Barton, then a private member of the New South Wales legislature. Deakin coined this episode as the ‘Hopetoun blunder’. In reality, Hopetoun followed protocol in his dealings with Lyne, head of government in the oldest colony, and thus ensured that Australia’s first prime minister was appointed on Australian advice.

Deakin and the protectionists had feared that if Lyne were to form the government, on the basis of being the leader of the largest (and first) colony, his successor might be Reid and that the whole protectionist cause—and the Victorian industrial sector now dependent on protection—would be imperilled. Their own political reputations would certainly be diminished and, following that, perhaps the votes of their parties. They were determined to do everything they could to ensure that the first prime minister would be both a supporter of the Victorian system of protection and an unequivocal supporter of Federation, believing that this would give them an advantage at the first election in March 1901. Accordingly, they campaigned behind the scenes to prevent Lyne forming a government, and promoted Barton’s case. Hopetoun accurately read the situation and commissioned Barton, who took office as prime minister on 1 January 1901.

Reid and Barton were old opponents, and Barton had unsuccessfully opposed Reid in his own electorate in Sydney over their differences on the Constitution. He and Reid would fight it out at the nation’s first general election to become Australia’s first elected prime minister.

Reid versus Barton

The main difference between himself and Barton, Reid insisted, was one of character and belief. His case against Barton in the campaign was that the prime minister was something of a Tory, weak on policy and easily swayed by his stronger colleagues Deakin and Kingston. Voters should be concerned over Barton’s lack of policy consistency:

When I find a Prime Minister who is a freetrader, then a federationist, and now at the head of a protectionist Ministry, I think it is a consolation for me to feel that all through my political life, in office or out of office, I lived with the same freetrade party (great applause), and I am prepared, if the odds are against me, to go down in the same grand cause.⁷

Nothing illustrated Barton’s policy vacillation more clearly, Reid said, than his position on women’s suffrage. He had opposed it for years, but now that he was in the company of ‘two powerful, masterful young men, who believe in women’s suffrage’ (Deakin and Kingston), he had changed his mind: ‘Here is the Prime Minister, supposed to be a man of mature political views, who ridiculed and almost insulted those who advocated this cause a year or so ago, and now, after balancing a feather for five minutes before the whole of the Australian people, says that he is now an advocate of women’s suffrage.’⁸

But the big issue was the fiscal issue: the taxation system of the new nation. Would it be effectively indirect taxes (customs duties) falling most heavily on those with lower incomes, or would it be direct taxation of the kind that he had advocated in New South Wales, where the wealthy would pay their fair share? There was no taxation that had more serious social and national consequences for Australia’s future development than tariffs on imported goods.

Reid pulled no punches. Who had tried to grab Australia’s industries for themselves by their tariff? Victoria. Who had come to Sydney to raise campaign funds from manufacturers who were doing well under free trade, but thought they could make more at the expense of the rest of the community under protection? Barton. Whose protected but still uncompetitive factories were crowded with women and children in a desperate effort to lower costs? Victoria’s. New South Wales’ competitive factories were profitable enough to employ men. The effort of the protectionists to argue that ‘industry’ meant manufacturing was false:

I ask those men who tried to wall Victoria in against brother Australians, now that their brother Australians have the power to decide this great question, whether they expect the great primary industries of Australia are going to bow down and serve the protected industries of Melbourne? I do not think it is likely.

Sincere and honest protectionists tell you plainly they believe it is a good thing to make use of the Customs-house in order to help colonial industry. The difference between those gentlemen and myself is this. I consider the industry of our free selectors and the pioneers all around Australia as a colonial industry. I consider every honest industry throughout this State is a colonial industry. I think every man who has an honest occupation is following a colonial industry, and the fallacy of the protectionist policy, I think, is that it makes the great naturally profitable industries, and the struggling men engaged in them, a target for artificial, unnecessary burdens, in order to exalt one man’s business above that of another.⁹

Government was simply too ignorant to replace the market with its own industrial schemes:

You cannot restrict the free play of human competition and enterprise without injuring it. Who are you, who are these Federal Ministers who presume to know how to map out the future industrial destinies of this young continent? What does Mr Barton know about it? What does Mr Kingston know about it, or Mr Deakin? Nothing. (A voice: ‘What do you know about it?’) That gentleman is perfectly right: I was going to wind up with myself. (Great laughter.) I suppose I have studied these things a trifle more than any of the gentlemen I have named, but I have the sense to know, with the little knowledge I have got, that I know nothing about it. (Hear, hear.) But the presumption of these protectionist politicians. Give them a pen and a quart of black ink (laughter), and they will frame an industrial policy for all creation in half an hour.

Go to the brainiest business men in Sydney who have studied mercantile enterprise for 50 years, and ask them to draw up a tariff which will fairly take into account the industrial possibilities of this continent, and they will say: ‘Do you take me for a lunatic?’ But go the protectionist and he will draw it out in a minute.¹⁰

The Free Trade and Liberal Association of Australia

The campaign for the first Australia-wide elections in March 1901 intensified the efforts of the major Liberal groupings to secure their positions across the country. The free traders saw establishment of interstate free trade under the new Constitution as a victory but, despite the great debate that had taken place over free trade and direct taxation in New South Wales under Reid, they acknowledged that the decision whether the new nation would rely on customs duty as its main source of revenue was the real battle looming. Known as the Braddon clause, section 87 of the Constitution, providing that for ten years the states would receive three-quarters of the customs revenue collected by the Commonwealth, seemed already to bias revenue decisions of the federal government towards indirect taxation. The free traders knew that Reid would have to lead the fight against trade restriction, difficult as it might be, given that national politics, as a result of the actions of the Victorians, was already becoming entangled in the web of interests created by protection. Whether direct taxation, as an alternative to indirect customs duties, was a realistic policy option would be fought out within the free trade camp.

In February 1900 a conference organised by a provisional committee chaired by Edward Pulsford, who had given his life to the free trade cause and had led its main ‘think tank’, the Free Trade Association in New South Wales, had brought together representatives of the free trade parties of the colonies at the Equitable Building in George Street, Sydney. Delegates came from New South Wales, Victoria, Queensland and South Australia. Sir Edward Braddon, from Tasmania, apologised. Western Australia had still to agree to join the Commonwealth as an ‘original state’ (which it would do by referendum in July 1900). John Francis Hughes, MLC, from New South Wales, was elected chairman. In 1899 he had been Minister for Justice in Reid’s government, and was a prominent Catholic layman.

Using the Free Trade and Liberal Party in New South Wales as the model, the conference agreed to establish a national party with a campaign organisation to be named the Free Trade and Liberal Association of Australia, and resolved that a branch of the Association would be formed in each state. The objects of each division would be: (a) the defence and propagation of free trade and other liberal principles, and (b) the election of free trade members to the Commonwealth Parliament. In addition to each state organisation there would be a coordinating National Council comprising delegates apportioned according to the population of each state, with a minimum of two, together with members of federal parliament who subscribed to the principles and platform of the party. The platform of the party would be determined by the National Council. A provisional organising executive was appointed consisting of Francis M’Lean, Edward Pulsford (NSW), Max Hirsch, J.E. Mackie (Vic), D.M. Charleston (SA) and John Leahy (Qld).¹¹

Although the discussion was mainly about the coming campaign, the national framework being established clearly held open the possibility that the structure set in place could be that of a continuing national political party.

A motion from Pulsford was carried that ‘it is desirable to begin the federal campaign at an early date, and that arrangements be made for the holding of not less than 100 meetings throughout the five States, at each of which one or more freetraders from other States shall speak’.¹²

The policy debates at the conference quickly brought to light the difficulties of achieving the goal of the most ambitious free traders: that of replacement of the indirect tax of customs duty by direct taxation. This had been essential to establish a regime of ‘pure free trade’ in the view of Henry George and the radical wing of the New South Wales free trade Liberal party led by the supporter of Henry George, Edward Foxall.

The principal political problem to which a policy for direct taxation gave rise was that its achievement was taken to imply abolition of duties on imports on which the Victorian protected industries were relying. The delegates were divided between those (the majority) who accepted that, under the Braddon clause in the Constitution, it had in effect been decided already that the main revenue source for the new Commonwealth would be customs duties, and whose priority was establishment of a low-revenue tariff without protection for specific industries, and the more radical followers of Herbert Spencer and Henry George, such as Max Hirsch, who were keen on democratic grounds to have a low (or no) tariff supplemented by a revenue-producing direct land tax. Hirsch, schooled in Austrian economics, argued: ‘If freetrade ever hoped to move the mass of the people it must mean such a rearrangement of the burdens of taxation that the present injustices should be done away with, and so that the greater part of taxation should not rest upon the shoulders of the persons least able to bear it.’¹³

Hirsch’s appeal was backed by a proposal to limit any Commonwealth tariff to duties on intoxicants and narcotics. It was a proposal with a red warning light attached for the party’s political leaders. Bruce Smith, one of the strongest advocates of free trade, but with an acute awareness of the business implications of such a policy in Victoria, said that he ‘was as anxious to see the millennium of freetrade as anyone’ but that Hirsch’s proposals would mean ‘the ruin of those persons who had embarked millions of money upon the strength of the continuance of the protective system’.

Another risk implicit in Hirsch’s proposal was that a land tax would alienate the very rural voters who were most disadvantaged by the higher costs associated with the shielding of manufacturing industry from competition, and might therefore be most favourable to the free trade cause. As expressed by J.E. Mackie from Victoria: ‘The working men of Victoria were protectionists and the farmers free traders, but could it be supposed that freetrade candidates could go to the country at the coming election and hope to be successful, if they advocated a land tax of 3d in the £1.’ James Ashton, describing himself as belonging to the ‘new school of freetraders’, nevertheless warned against any attempt at the conference to impose one perspective on free trade over another. The conference had met ‘to devise a campaign whereby freetrade would achieve the maximum success in the coming Commonwealth’,¹⁴ he said, and that meant concentrating on points of agreement, not of dispute. The conference resolved:

1That recognising that the establishment of the Commonwealth marks a great epoch in the history of Australia, and feeling assured that her full development and power cannot be maximized except under principles of freedom, the members of this conference pledge themselves to do their utmost to secure the adoption of a tariff based on free trade principles;

2That the vast business which the producers of today are transacting with Europe and other distant parts of the world against competition of extreme severity imperatively demands that our producers be protected against a policy which, though called ‘protective’, handicaps them in the prosecution of their business;

3That the term ‘protection’ as applied to a certain fiscal policy is incorrect and misleading, since instead of ‘protecting’ the mass of the people it denies them the right to make the most they can of their earnings, and in fact reduces the purchasing power of all wages for the benefit of private persons;

4That customs and excise duties imposed by the Commonwealth should be imposed only with the view to provide for the wants of the Treasury, and in no way to give support to any special industry at the expense of the general community;

5That the first federal tariff should, as far as the exigencies of the several states will permit, embrace a number of duties somewhat similar to those in force in Great Britain with the intention of as soon as possible establishing a free breakfast table. Any deficiency of revenue in such latter state to be made up by direct taxation.

Hirsch’s proposal for primary reliance on a direct land tax had been rejected mainly on political grounds, but even the more moderate free trade position stated in Clause 5 was to cause its advocates difficulties in the political debate. There were political issues that would arise in securing to each of the states from customs duties adequate revenue to replace that which they had lost by Federation, but the most troublesome problem was that there were already industries relying, as Bruce Smith had pointed out, on the continuance of protection for their viability. In the absence of a national protective tariff, many of these would not survive the transition to free trade between the states. Many supporters of free trade were happy to see such industries go to the wall, regarding them as burdens on national prosperity and on wage-earners, but the protectionists were not slow to see the political opportunity and exploit it.

Hirsch recognised that in the battle of ideas the individualist and democratic causes—which he saw as the same—were far from won. Indeed, they were slowly being lost to the forces of collectivism, both among the Liberals themselves and the liberal and the utopian socialists in the labour party. He set about providing a full economic and philosophical case for his position in a book, Democracy versus Socialism.¹⁵

The National Liberal Organisation/National Liberal Association

Shortly after the free traders had established their national party organisation, the Intercolonial Conference of the Protectionists’ Union also met in Sydney, and its leaders were not slow to note the policy compromises that their opponents were foreshadowing. The President of the conference, T. Rose, MLA, claimed that the free traders had failed to state clearly whether they were going to support a revenue tariff or true free trade policy—that is, no tariff—with revenue derived from direct taxation. He noted the apparent willingness of the free traders to agree to increasing customs duties in New South Wales (in return for reduced duties in Victoria) and charged them with confusion. He then identified the free traders’ dilemma in relation to the existing protected industries:

There was only one point on which the free trader and the revenue tariff advocate were united, and that was upon a policy of destruction. They were pledged to kill all the present protectionist industries in Australia and create an army of unemployed. He believed that so cold-blooded a doctrine would meet with no response at the ballot box. The protectionist party, on the other hand, had a definite policy of protection against foreign competition, and the establishment of local industries under the best conditions to the wage earner.¹⁶

Samuel Mauger told the conference: ‘He was satisfied that all persons who were true patriots were determined to protect Australia against the poorly paid wages of foreign countries, and protect the working men from the cruel competitive struggle for wealth.’¹⁷

Mr J.R. Cohen (New South Wales) told the conference that ‘protection was a breathing, living fact, and that its natural aim was the elevation and improvement of the social condition of mankind’, while B. Hoare (Victoria), with the exposure of the extent of poverty in England’s cities by Booth and others providing a context, but with a questionable sense of history, ‘maintained that protection was the most scientific and philosophical system known to the mind of man, while free trade had an eternal tendency to cramp the human intellect and human industry. Free trade had always been a prelude to a decline in nations, whereas protection was synonymous with national prosperity as was shown in the case of Great Britain.’ Following debate the conference went into committee to discuss the desired tariff schedules. The press was excluded.¹⁸

It was not, however, until November 1900 that the protectionists began to put in place their state electoral organisations, with the initiative coming from Deakin to establish what became known in Victoria as the National Liberal Organisation. The protectionist Liberals did not seek to establish a national party structure of the kind that the free traders had put in place, being content, as far as practicable, to establish parallel cooperating organisations in each state.

In Melbourne on Monday, 19 November 1900, Deakin presided over a meeting that included the Victorian Premier Sir George Turner, the Chief Secretary Alexander Peacock, other MPs and supporters (many of whom were also members of the Australian Natives Association) to outline his plans. The objectives of the organisation he proposed were to ‘secure the registration of voters, and of support for the political policy of the organisation, to discuss national questions, to select and support the federal candidates chosen by the organisation, and cultivate friendly relations among members’.¹⁹

Deakin suggested that the main electoral platform of the organisation could embrace adult suffrage, a white Australia, a protective tariff, nationalisation of the site for the federal capital and no alteration of the federal Constitution until it had been working long enough for a fair opinion of it to be formed. The proposed fiscal policy, he explained, ‘was intended to protect vested interests in established industries, and of course encourage the establishment of others’. The idea of a national age pension scheme was discussed, but not taken forward because of action being taken in the states.

The meeting adopted a state-based constitution for the organisation, which comprised a general council and central executive consisting of one representative from each electorate. Candidates would be nominated by a specially selected council in each electorate. The organisation’s central executive would select candidates for the Senate.²⁰

Edmund Barton, the man who had been unquestioned leader of the federal cause at the second Convention, and who would shortly become the first prime minister of the new nation, would lead the protectionist Liberals in New South Wales. Barton could see that the appeal of protection had diminished, and he sought to minimise the issue while emphasising that the priority should be the building of the governmental institutions of the new nation.

The Liberal free trade campaign

In New South Wales, according to Pulsford, ‘the fighting part of the campaign [was] done by the Freetrade and Liberal Committee, which embraced practically every public man known in freetrade circles’.²¹ In the other states the fight was carried by the various divisions of the Freetrade and Liberal Party. As the Association’s national campaign gathered momentum, George Reid toured the nation, including the strongholds of ‘militant protectionism’ in Victoria, entrancing audiences with his passion, rhetoric and jocularity.

To a meeting of more than two thousand people in the Adelaide Town Hall in October 1900, Reid had talked about protection’s infant industries: ‘The peculiarity about these industrial infants was that the older they got, the more nourishment they required. He would like to know how even a state mother could keep up under those circumstances. (Laughter.)’²² He went on, ‘Protectionists asked, Can you point out a nation that has ever grown great without having a protectionist policy? [I say] in reply: Is there one family that has ever grown old without having the measles? (Loud laughter.)’²³ Accompanied by Max Hirsch representing the Victorian Free Trade Liberal Association, Reid toured country Victoria, where he was enthusiastically received by farmers who told him of the effect of high colonial customs duties on their costs and competitiveness. The Argus, a supporter of free trade, called Reid’s rural campaign ‘a triumphal march’.²⁴

H.V. Evatt later noted that ‘when [Reid] visited Melbourne to address large audiences, the critical crowds of the industrial electorates began to realise that Deakin’s rhetorical flourishes lacked the substance, the logic and argument of Reid, well wrapped up, as the speech often was in satire, humour and plain rollicking fun’.²⁵

Reid reiterated again and again that under free trade, private enterprise would have to venture its own capital and not fall back on the hard-earned savings of taxpayers. Clothing and footwear were needed by all. Under protection, the costs fall on the people as a whole. In fact: ‘[T]he biggest protecting industries deal in the articles used by the greatest number of people. The pressure comes on the masses with limited incomes. Their incomes are not the incomes to touch. They have their battle to fight.’ He famously asserted: ‘It is not cruelty to chuck a puppy into the water and teach him to swim; it is not cruelty to let the young industries work and grow strong by their own efforts.’²⁶

Reid’s vision of an Australia whose industries could compete in the world was powerful. Open to the world, Australia would thrive culturally as well as economically. Its industries would be strong and competitive, would stand on their feet without special privilege, would charge lower prices, which would be of benefit to the mass of workers, and would support, not threaten with the inflated costs always entailed in protection, the great rural export industries on which the nation depended. Politics would be free from the constant and corrupting pressures of companies seeking handouts because they could not compete, and Australia would not be a divisive force within the empire, as Victorian protectionism had been a divisive force within Australia. Ultimately Reid’s passion came from his perception that protection was immoral and undemocratic: that it was giving privileges to the few at the expense of the many and that it corrupted the political process. On that he and Bernhard Wise were in complete agreement.

Throughout the campaign both sides struggled with the implications of the clause that had been inserted in the Constitution on the motion of Sir Edward Braddon of Tasmania (Section 87), whereby for the first ten years the Commonwealth would have to return three-quarters of its customs revenue to the states. Logically that meant that the more ambitious the Commonwealth, the greater its collection of customs revenue might need to be. How could it be kept neutral as between industries? Would it not invite industry lobbying for benefits? At what level and under what pattern would it inevitably become protectionist? Barton had said at Maitland that it was the government’s intention to raise no more revenue than was necessary for the Commonwealth, but that meant that for every additional £1 the Commonwealth needed, it would have to raise £3 for the states. The free trader Sir William McMillan called it the Braddon ‘blot’. Bruce Smith, defending Braddon, who had opened the door to Federation by his proposal, pointed out that a Commonwealth old age pension scheme paid for out of customs revenue and costing £1,000,000 would require the Commonwealth to raise £4 million in total.²⁷ How would this tax be structured?

The Liberal Protectionist Campaign

It was as the first leader of the new nation that Barton launched his federal party organisation in New South Wales on 7 February 1901 at an overflow meeting at the Sydney Town Hall. Barton declined to have the new party called ‘protectionist’. Joining the battle for possession of the name ‘Liberal’ in his home state, his new organisation called itself the Australian Liberal Association. Welcoming his colleagues from Victoria, Attorney-General Alfred Deakin and Treasurer George Turner, who had come to the launch to support him, Barton noted the annoyance of the free traders at the protectionists daring to call their organisation ‘Liberal’ in the home of Australian free trade Liberalism:

We are getting into very great trouble at the hands of our opponents because we have put out a liberal policy, and because we have formed an Australian Liberal Association (Cheers) … We are called names because we have not termed ourselves the ‘Australian Protectionist Association’. The answer is that the whole policy is a progressive and liberal policy, and we prefer to call it by the name adapted to the whole instead of trying to name the whole by a part.²⁸

It was a significant comment, because throughout the campaign there would be a distinction between Reid on the one hand and Deakin and Barton on the other in their campaigning strategy. Reid saw the new nation’s commercial framework, and the source of revenue for the new government, as the overriding issue on the political agenda. Barton and Deakin revealed some discomfort with this emphasis on the ‘fiscal issue’, which was hard to argue in the electorate, preferring to focus on a broader institutional and social policy agenda.

Five days later Deakin’s National Liberal Organisation in Victoria announced its platform. Deakin was now the federal Attorney-General in Barton’s ministry, and on Tuesday, 12 February he presided over a meeting representing seventy branches of his organisation and the platform on which the party would fight the election was adopted. Its planks were:

AProtection and Bounties—The steady development of Australian resources—rural, mineral, and industrial—by means of sufficient protective duties, bounties and other encouragements,

(a) preferential trading relations within the empire where feasible;

BAdult franchise—A uniform adult franchise;

CA ‘White Australia’—A restriction of immigration, and the ultimate exclusion of coloured alien races; D Progressive legislation—The well-being of the community as a whole, so far as it can be fostered by equitable and progressive legislation, particularly in relation to:

(a) The organisation of the Commonwealth

(b) Its adequate defence

(c) Its economical government

(d) Old age pensions

(e) Conciliation and arbitration

(f) Nationalisation of the area of the federal capital

(g) Maintenance of Australian interests abroad

(h) Any other measures necessary in the public interest. ²⁹

In the course of the campaign over the following weeks, both the free trade and protectionist Liberals held mass meetings around the country. In Western Australia in February, a National Liberal and Protectionist League had been formed.³⁰ At the meeting to found the Liberal Association, Barton had said that Reid’s determination to impose free trade on the nation as a whole would lead to the destruction of industries in those states that already had protection:

The real issue of this controversy is … whether, no matter to whom [the prime ministership] fell [after the election], this state is to be just and fair to the others. And you cannot have that policy a just one if the claims of one state are to be paramount … The issue between us is ‘revenue with destruction’ on their side, and ‘revenue without destruction’ on our side.³¹

In answer to an interjector’s question, ‘What is your tariff?’, Barton declared:

My tariff is a tariff that will raise revenue without destroying existing industries … [W]e admit that a scientific protectionist or free trade policy is totally impossible, looking at the revenue which has to be raised. Revenue must be raised, and it cannot be raised by a [trade] prohibitionist, a protectionist or a free trade tariff. You must have a revenue tariff and moderate protection.³²

By ‘scientific’, Barton meant a tariff designed with technical efficiency to achieve the full objectives of the committed protectionist (such as Syme). The word ‘scientific’, however, to some extent misrepresented the reality. The arguments for federal protection were based, as Barton demonstrated, more on the political ‘realities’ that had been created by the Victorian policy rather than the impeccable logic of the protectionist case, for many of the arguments were readily challenged, and in the end the case for trade restriction came down to its use as a tool to encourage infant industries.

Nevertheless, its advocates claimed that protection would not increase costs, and therefore prices, because it would encourage competition between Australian enterprises; it would encourage not parochialism but a vibrant national culture; it would increase the efficiency of Australian industry because it would foster domestic competition; the costs of protection were paid by the importer, not the Australian producer or the consumer; without protection there would not be enough jobs for Australian workers; and that a common tariff against the world would contribute to national unity and national strength. None of these arguments proved to be valid when tested against reality, but it would be the work of many decades to demonstrate the falsity of the expectations thus expressed.

The South American cousin

The new Australian nation was about to test the proposition whether a democracy could pursue a free trade policy or whether it would fall under Macaulay’s generalisation that democracies, crowded with special interests, would always tend to protection. Reid in New South Wales had done his best to show that free trade and democracy were not only compatible but also essential partners, but he had both Barton and Deakin, and a Labour Party still divided on the issue, to contend with.

The comparison with the split among the American founders over the role of the national government is perhaps no more illuminating in understanding Australian events than a comparison with the nation that in many ways was a parallel to Australia in the southern hemisphere: that informal part of Britain’s free trade empire, Argentina. It is what did not happen in Argentina that provides illumination, for in Argentina a split among the liberals over free trade and protection did not occur—at least not for some time.

Argentina shared many similarities with Australia: its development had depended on immigration and capital from overseas (much of it British) as had Australia’s, and had focused on successful exporting primary industries, especially meat and wheat. It had been a major field for investment of British capital and before 1914 was often considered an informal part of the British free trading empire. Its population was similar in size to that of Australia: 5.6 million in 1900 compared with Australia’s 3.7 million, although Argentina’s was growing more rapidly. There had not been an effort to develop national industries under a policy of protection because, from the 1880s, Argentina had accepted a unified national vision that free trade liberalism was the key to progress and civilisation.

Argentina’s differences from Australia suggest some of the reasons for the policy divergence. Neither mass democratic political parties nor a strong political tradition of the loyal opposition had developed, and national policy remained an elite preserve in a patronage-based political system.³³ Argentina did not have a heavily unionised workforce nor a labour party. Universal male suffrage was not achieved until 1912 and women’s suffrage not until 1947. Argentina was not therefore an exception to the tendencies of democracies, with their multiple avenues for the expression of powerful parochialisms, to move to protection. It was far from a democracy in the Australian sense. It was nevertheless to be an example of the economic and cultural benefits of free trade.

For several decades until 1930, Argentina was to remain predominantly reliant on a policy of free trade and, as Australia struggled economically, with its inefficient protected industries, Argentina experienced its most successful period of economic growth. It was a period in which Buenos Aires developed an internationalised and sophisticated culture symbolised by its opera house, which was not matched in Sydney or Melbourne. Only in the 1940s did Argentina, isolated from international markets by the Great Depression and World War II, develop under Perón the concept of a self-sufficient national capitalism, where the home market was to be served entirely by domestic industries—a policy direction that was, in turn, followed by severe economic decline and political corruption.

‘All the wretched provincialism’

On the Wednesday before the election in March, the New South Wales free traders rallied their supporters in a packed Sydney Town Hall. The main candidates spoke, including candidates for the Senate who were described on a banner as the ‘Senate Bunch’. There was a strong identification of their cause with the traditions inherited from Liberal Britain and a reiterated determination not to ‘slam the door’ in the face of Britain by a protective tariff. Sir William McMillan, however, foreshadowed the expectation now shared among the New South Wales leaders that the protectionists, given their support around Australia, would win the majority in the new parliament.

That the protectionists were led by Barton, a prime minister who had his political base in New South Wales, was a significant factor, and he had given the task of devising the nation’s new tariff to Charles Cameron Kingston from South Australia, described by one of the candidates, J.P. Gray, as ‘the most pronounced and self-willed protectionist in Australia’. The intentions of the government were plain. The battle was joined. As McMillan said,

They might depend upon it that whoever were returned as free traders in the Parliament would sit in opposition to the present government (Hear, hear). They might depend upon it that they would bide their time if they were defeated at the beginning, and create a greater and truer Liberal party in the Commonwealth Parliament of Australia (Cheers). They would wait until all the wretched provincialism had gone past, and would show their fellow countrymen that the principles involved in the Constitution which had made Australia free from one end to the other must be fought for by the Liberals in that Parliament, until not only should Australia be free in her own commerce, but also free to the commerce of the world …

Let them look back to the history of these great Australian states and consider the wise policy of the British Government and of British statesmen. What had that policy been which had made us the great people we were? It had been the policy of practically unrestricted freedom … We had as an object lesson the history of the mother country, and the marvellous struggle for 100 years for the liberty we now enjoyed; and we had no less as an object lesson the 50 years history of the struggle in New South Wales. Were we going to allow any ignorant Government or members of parliament to tell the people of this state how to carry on their industries? He appealed to them not merely on the narrow ground of this fiscal squabble, but he appealed to them as men who were to become a part of a new Australian nation … to send men into the Federal parliament who would fight for freetrade principles, and ultimately lead the party to victory.³⁴

Reid expressed his confidence that ‘under a national policy of free trade the manufactories of Victoria, after some agonising symptoms perhaps, could recover their youth and would be able to walk without stilts’.³⁵ Free trade would make Australia a ‘Greater Britain’ in the southern seas. It was not a provincial aspiration but a proper policy for the new nation as a whole. In a vote on the key question among the Town Hall audience Reid detected ‘two and a half hands’ for protection. But the comments from the platform indicated that the free traders had counted the numbers and were resigned to not having a majority in the House of Representatives. It was all the more important to vote for free traders in the Senate,³⁶ where they could check the proclivities of the temporary majority in the Representatives. Isaac Isaacs warned his electors in the Victorian electorate of Wangaratta that if they voted against the Barton ministry they did not know whom they would get—it could be ‘George Reid or Max Hirsch’.³⁷

On the following day, the Thursday before the election, Deakin’s National Liberal Organisation held a matching rally in the Melbourne Town Hall where a number of the organisation’s candidates for the House of Representatives and the Senate spoke. During the speeches a ‘streamer’ bearing the words ‘Protection is a fraud—Gladstone’ was hung over the balustrade of the gallery. ‘For a few seconds there was a very lively fight, fists being freely used; and in the end the protectionists overwhelmed the freetraders by force of numbers and destroyed the standard.’³⁸

In South Australia Charles Cameron Kingston relied on his trusty Australasian National League, which had been founded in the previous decade. In Western Australia the contest was fought out between the Free Trade and Liberal Association (which had been established on 10 August 1900) and Forrest’s Liberal and Protectionist League.³⁹ In Tasmania the main contenders were the Federal Protection League of Tasmania and the Tasmanian Free Trade and Liberal Association.⁴⁰ Queensland adopted a strong state focus for the campaign, and the Premier and others formed the Commonwealth Electoral League to suppress the fiscal issue and combat Labour. The League sought to provide an umbrella organisation for free traders, protectionists, federalists and anti-federalists.⁴¹

Both the free trading employers’ unions and the protectionists’ unions endorsed candidates in several states, as did other organisations.

First federal election, 29–30 March 1901

The election result surprised all. Reid’s appeal had not gone unheard. As expected, the protectionists seemed to have won the House (receiving 44 per cent of the Australia-wide vote, compared with the free traders with 34 per cent and Labour with 19 per cent). Nevertheless, given that the Labour members included both free traders and protectionists, the free traders had done well enough to make establishment of a federal protective tariff at best uncertain, but not well enough to make Reid prime minister. It was by no means a national revolt against protection, and against the Victorian strategy, for which Reid had hoped, but nor was it a crushing defeat for free trade. Indeed, given the success of Labour’s free traders, it was a result from which Reid and his party took considerable heart.

With the full election result not yet known, on Thursday, 11 April the Committee of the Freetrade and Liberal Association met in St James’ Hall, Sydney, to decide on the future of their organisation. Reid said he was heartened by the strength of the vote in his home state, especially for the Senate ticket, and expressed optimism about the outcome of the election. In Western Australia, of eleven members of the two houses, only Forrest (‘a very great leader’) was a clear supporter of the ministry (for pragmatic reasons, Reid implied). In South Australia, of thirteen, the free traders he believed had a majority of one.⁴²

Despite the fact that there had been no prominent parliamentary leader of the free trade cause in Victoria for a generation, and that the free trade candidates had received only 24 per cent of the vote in that state,⁴³ those at the top of the Senate vote—Sir William Zeal, Simon Fraser and Sir Frederick Sargood—were either very moderate protectionists or leaned to free trade. Their votes would certainly be against any extremism on the issue. Reid said he had been impressed by the Victorian response to his free trade message, and he wanted to test this again, because he believed the free traders could do ‘very much better next time’. The leader of the Free Trade and Liberal Association in Victoria, Frederick Ashworth, had done surprisingly well against Isaac Isaacs (‘one of the cleverest of Victorian politicians’). Reid was nevertheless disappointed at the defeat of Max Hirsch in Wimmera by a protectionist candidate, Pharez Phillips, who was a well-known local identity and previous minister, and expressed his regret.⁴⁴

Reid was also of the view that the free traders could improve their position in Tasmania, where the campaign had clearly disappointed him. Despite the electoral ‘chaos’ in Queensland, where state issues had dominated and the fiscal issue had never really been put, so far as he could judge overall, the free trade Liberals ‘had practically captured the Senate, and that (with Labour) they very nearly captured the House of Representatives’.⁴⁵ His own avowedly optimistic belief was that ‘the tide was setting in, even in state politics, very strongly in the free trade direction’, and that over time, not immediately, the people of Australia could look forward, assuredly, ‘to one of the most sound and liberal tariffs in the civilized world’.⁴⁶

The strength of Reid’s national free trade campaign had shocked the protectionist ministry, Reid claimed, and forced them to qualify the statements of their program outside Victoria. He thought that ‘the result of the efforts of the freetrade organisations of Australia had been to make anything like a sort of protective tariff that protectionists always understood to be a protectionist tariff absolutely impossible’.⁴⁷ Experience in New South Wales with Dibbs, however, had shown that protectionists were quite prepared to sneak in their policy, while claiming not to be doing so. Reid expressed his concern that ‘under the appearance of moderation’ the government would ‘sneak in protection’ while denying that that was what they were doing.

Reid enthusiastically declared that ‘the powerful organisation that had worked so well’ during the election campaign, the interstate Free Trade and Liberal Association, should not only be kept alive but also ‘kept going in a thoroughly healthy, vigorous action. It seemed to him that this great fiscal fight was only entering upon its first phase.’ Whether the same organisation should attempt to look after the free trade interests at the state level was another question, given that the customs power—and hence the trade policy—had moved to the Commonwealth. Reid thought it might be possible to form a newer and broader political alliance for the state parliament, and that a state organisation could indicate its concern with a wider range of issues, and even draw support from those who were not predominantly in favour of free trade. Pulsford urged that the Freetrade and Liberal Committee, which had been the main organiser of the free trade campaign in New South Wales itself, should merge with the Association and that Reid should assume the presidency.

As Reid had foreshadowed, while the views of many members of parliament on the question of free trade and protection were not absolutely fixed, and there were members who were open to compromise, one assessment of the outcome of the first federal poll was the election to the House of Representatives of 32 Liberal Protectionists, 26 Liberal Free Traders, 15 Labour Party members and two others.⁴⁸ Labour members would hold the balance of power. In the Senate the Free Traders formed the largest single group with 17 Senators; the Protectionists had 11 and the Labour Party 8. As Labour contained both free traders and protectionists, the balance between the two sides on the main contested policy of the first parliament was very fine. The free traders in particular were encouraged by the Senate outcome, which had seen significant setbacks for the advocates of high tariffs, and believed that supporters of their cause controlled the Senate.

Liberal tensions

The new Commonwealth Parliament highlighted tensions between the leading figures