This policy was the one in which the economists were united, and which they repeatedly pressed. This was the single most controversial measure, and differentiated them most sharply from the ‘Keynesians’, who thought wage cuts were, at best, unnecessary, and at worst counter-productive.

Why did the four recommend them? Characteristically, Giblin advances his advocacy (in Australia, 1930) with considerable caution:

This is perhaps a record for public humility, even if followed by a less humble, implicit claim of authority.

What do their own models predict? Not all their models imply a need of a real wage cut. Indeed, the shock which Australia had experienced in 1931 – a decline in the price of food, for a given price of manufactures - will increase real wages in the Enquiry model. This is because the decline in the price of food induces labour to shift from food to manufacturing. This does not reduce the marginal product of labour in manufacturing, as marginal productivity in that sector is assumed to be constant. Thus the manufacturing wage is unchanged. But as food production has declined, the marginal product in food has increased. The food wage has increased. Thus workers have benefited from the slump in food prices. Landlords, of course, have suffered. Thus in the Enquiry model there is no need for any fall in price of food to be ‘shared’, as Giblin’s endlessly urged during the Depression: its burden falls entirely on the owners of land. Worker consumption increases, although by less than landlord consumption decreases.

By contrast, the formalisation of the Australia, 1930 model (contained in the appendix to chapter five) does imply that living standards of labour must fall in the face of a fall in the money price of food, if full employment is to be preserved. This is because a fall in the money price of food requires the money wage to fall, if full employment is to be preserved. And as the money price of manufactures is unchanged, this fall in the money wage implies a fall in the real wage in terms of manufactures must fall. T. M. Fitzgerald once suggested that, in using the multiplier to rationalise wage cuts, ‘Giblin drew the most perverse conclusions from his multiplier’. Not perverse in the present analysis, but wholly consistent.

The cuts in government outlays recommended by the report of the Copland Committee were extraordinary by modern standards, amounting to two to three per cent of GDP. With a multiplier of two, that might have been responsible for a five per cent reduction in GDP. Copland himself allowed for the existence of an impact of government spending on activity: ‘Economy in Government expenditure, whether from loans or revenue, will mean some increase in unemployment immediately’ (Copland 1930b, p. 24).

There are, however, several exonerations of this radical tightening of fiscal policy in the depths of depression:

First, ‘everyone’ favoured cutting. The majority of the Labor Party, as well as the Opposition, approved the Plan’s cuts. Scullin was against all but ‘revenue-producing’ public works. And Theodore told the Argus: ‘I have not argued against substantial reductions in government expenditure’.

Second, by the time the Premiers’ Plan was agreed to (the last days of May 1931), the contraction in GDP had already taken place. The worst was already over. Australia had already hit rock bottom, earlier than most other economies; 1930–31, not 1931–32, was the trough year in Australia in terms of real GDP. Thus cuts may have made things worse in a ceteris paribus sense, but they cannot be blamed for the 20 per cent fall in GDP between peak and trough; that had already occurred by the time of the plan.

Third, the fiscal integrity of the state may have necessitated the cuts, regardless of their contractionary impact. If a government’s debt is not to blow out to an unlimited extent, the present value of government outlays must equal the present value of its revenues.

The reduction in terms of trade, if nothing else, would have reduced T, tax revenue, and so reduced the magnitude of the right-hand side. If government debt, D, was not be renounced, a reduction in the present value of government spending, G, or an increase in the present value of taxes, was compelled. And if that had a contractionary impact, then that impact was one price of preserving solvency of the state. And to preserve that solvency was necessary to preserve foreign investors’ confidence in almost everything in Australia. It was to this ‘confidence’ that sacrifices were to be made.

Fourth, although the Australia, 1930 model has an export multiplier at its centre, it does not so easily assimilate a government spending multiplier. The marginal propensity to save is zero, recall. So the private sector does not wish to spend less than its income; there is no ‘gap’ for government spending to fill. At the same time, owing to the absence of capital flows and the shortage of foreign exchange reserves, an attempt to create income by government spending would produce a foreign exchange crisis.

Finally, a favourite theme of Brigden in the mid-1930s: the cuts weren’t true cuts at all. They were cuts in inverted commas: ‘cuts’. Presumably by his use of inverted commas, Brigden is saying that while the Plan involved reductions in money wages and incomes, these were only rolling back the increases in real wages and incomes that had taken place since 1929, on account of falls in the cost of living which, until the Plan, had not been matched by falls in money wages and incomes.

None of these considerations makes an overpowering case for the cuts. To err with everyone is still to err. To be not blameable for the fall in national income that had already occurred, does not make for blamelessness: the cuts may have cut short an incipient recovery and prolonged the trough. The preservation of government solvency in the face of a declining tax base does not require an increase in current tax rates; a (credible) undertaking to restore taxes in the future would have equally served to preserve solvency.

A full absorption of Keynesian notions would have overpowered these considerations. But their multiplier ideas still left them a long way from the Keynesian conception of the generation of national income. Brigden seems to have fully held the ‘Treasury view’ on government expenditure. ‘The amount of credit used for ordinary government expenditure will decrease the amount of loanable funds in the community and make less available for capital expenditure’ (Brigden, Hytten and Shann 1931). In this vein Brigden stated in the midst of the Depression that excess savings were not a problem.^[31] At the same time Copland expressed a similar attachment to the ‘Treasury view’: ‘What is required is … a reduction in public expenditure as would enable the banks to divert some of the credit they are now creating for governments to industry’ (Copland 1931a, p. 23).

Their approach to the Depression was founded on the simple instinct that in adversity one must suffer to make the best of things. The collapse of the value of Australian exports had made Australia poorer, and it would only be made worse by not consuming less. That consuming more might be a solution offended this respectable and simple intuition.