The fall-out from devaluation included an attempt by MacBride to block the reappointment of Joseph Brennan as Governor of the Central Bank in 1950. Brennan had already clashed with the Government over his report for 1949. Summoned to a meeting with Costello, McGilligan, Mulcahy and McElligott on 18 November, he was told by the Taoiseach that “he considered its general tone and tendency contrary to Government policy”. Costello was careful, however, to stress that it was up to Brennan to decide how he should frame his report. The Governor put up a spirited defence, arguing that the Central Bank was “anxious to understand what the monetary policy of the Government was … they were bewildered by reading the various speeches of Ministers”. In reply, Costello “stated that the Monetary Policy comes from the Taoiseach and the Minister for Finance” (in other words, not from MacBride). At one point, he accused the Central Bank of wanting to interfere with Government policy. He also argued that the need for housing outweighed the threat of inflation—“inflation has to be chanced as against social betterment”.169 Brennan later said that he “merely abbreviated a passage to which the Taoiseach had taken particular exception (on the ground that it was not in accord with Government policy) while leaving the substance unchanged”. The “banshee of Foster Place”, as the bank was known in political circles, was left to wail on.170
MacBride, who significantly was not at the meeting, had meanwhile criticised the Central Bank, and the commercial banks, in a widely reported speech to the Catholic Commercial Club: “The time has come when our banking system and our financial authorities should cease to look upon themselves as mere money lenders who treat money and credit as a commodity to be exploited, irrespective of the needs of the community as a whole.”171 This speech led to complaints from Brennan, from the Government stockbroker, and the Governor of the Bank of Ireland. Brennan sought a statement from McGilligan that MacBride had not been speaking on behalf of the Government.172 No such statement was made, although Costello did give Brennan to understand that in an inter-party government “it was considered permissible for a Minister in an individual or party capacity to give public expression to views which might not necessarily be those of the government as such”.173
MacBride and Brennan did agree on one thing, though—neither wanted the Governor reappointed. The Clann leader argued that Brennan’s “views, policy and acts … are in direct conflict with the policy of the Government”, and that in an inter-party government the position should be filled by an agreed nominee.174 Brennan meanwhile told McGilligan he did not want to be considered for reappointment, only to be summoned by Costello to be told he already had been. The Taoiseach spoke about co-operation between the Bank and the Government. “I told him that cooperation had to be two-sided, and the Minister for Finance was not doing his part.”175
Brennan’s reappointment was a clear victory for financial orthodoxy over MacBride. The Clann’s standing committee issued a statement deploring the reappointment “as being indicative of a decision to continue the disastrous policy of the export to Britain of our men and money”.176 Costello’s decision was presumably taken in the interests of maintaining the confidence of financial circles in his government. Allowing the Governor to resign would have led to an even bigger row over its investment strategy. However, Costello had already demonstrated that he was open to new economic thinking—but on his own terms, not MacBride’s.
There were many disadvantages in becoming Taoiseach without having been party leader; but there were advantages too. One of these, as Ronan Fanning has pointed out, was that Costello “was unencumbered by the baggage of advisers and henchmen who ordinarily surround a party leader in opposition”.177 He was free to choose his own advisors, and turned first to his son-in-law, Alexis FitzGerald, who in turn recommended an economist in the Department of Finance, Patrick Lynch. Lynch was transferred to the Department of the Taoiseach three days after the formation of the Government “for the purpose of preparing economic data” for Costello. In July 1950 he was promoted to be Assistant Secretary to the Government and of the Department of the Taoiseach178—a very rapid rise which showed his value to the Taoiseach.
Independent economic advice had been offered before—notably by Professor Timothy Smiddy to de Valera—but the formal appointment of Lynch was unprecedented. The historian of the Department of Finance has suggested that it was a recognition both of the increasing importance of the economy in political debate in the postwar years, and of Costello’s view of his role as Taoiseach, as “the mouthpiece of the Inter-party Government on major issues which might split the coalition—a role he also assumed, for example, in the direction of the government’s foreign policy. In short, the capital budget was too important a decision to be entrusted to the Department of Finance alone.”179
Lynch found Costello “very quick on the up-take” when it came to economics. His knowledge of the area was minimal when he became Taoiseach, but with Lynch and FitzGerald he would insist on a detailed discussion of economic issues. “He never made a speech about any aspect of economic policy without understanding the implications of what he was talking about. It is possible to convert Keynesianism … into fairly easily defined issues concerning investment and so on, and this he understood and could defend in Cabinet.”180
Costello’s new interest in economics was noted by Lemass, who in July 1949 suggested his “knowledge of the elementary principles of national economic policy was acquired within the past year or year and a half. If, however, we have, in courtesy, to assume that it is of longer standing that that, I can only say that we would never have suspected it.”181 Costello replied by recalling the words of his UCD French professor at his last lecture. “He told us that we then knew enough French to learn French. I have never forgotten that … The longer I have lived and the more experience I have gained in law, politics or economics, the more I realise how little I know and how much there is still to be learned … I do not suffer the illusion that I know everything. When I was charged with the responsibility of my present post last year I took the precaution of gathering around me the best men and the best advice available here on Irish economic affairs so that I might be the better able to discharge the task this House placed upon me.”182
The influence of these “best men”, Lynch and FitzGerald, was not necessarily welcomed by his political colleagues. In later years, Mulcahy described them as being “a hard crust of intellectualism around him”, believing that by relying on their advice, Costello’s contact with his Cabinet colleagues was weakened.183 (Criticism of intellectualism may be more of a comment on Mulcahy than on Costello.) McElligott was unhappy too—meeting Lynch on the steps of Government Buildings on the day after Costello’s speech on the Capital Budget, he said, “You are a very young man, I want to give you one piece of advice. The more politicians know, the more dangerous they are!”184
It was Lynch who suggested at the start of 1949 that “a clear distinction should be made between the capital and current budgets, thus making Keynesian policies explicit”. If capital investment was separated from other spending, the need to balance the budget would not be a constraint on borrowing for capital purposes. Like MacBride, Lynch believed that part of the Irish economic problem was chronic underinvestment while sterling assets accumulated in Britain, all the while declining in value. A balance of payments deficit would in effect repatriate these sterling assets—although he stressed that “Keynes rejected inflation as much as he abominated continued deflation”. Along with FitzGerald, he drafted a speech for Costello to deliver to the Institute of Bankers in November 1949, making sure to clear it with McGilligan in advance. The Minister “made no changes of substance” to the draft.185
In his speech, Costello said the Government accepted its responsibility to reduce poverty and unemployment, and “to create economic conditions within which it will be possible to provide a high level of employment and … arrange our economic affairs [so] that no resources of land or labour which can be usefully employed should be allowed avoi
dably to remain idle …” He blamed Ireland’s poor economic performance on a lack of capital investment, particularly in agriculture, and said it was “the complete acceptance of this view by all the groups represented in the present Government” that made possible its formation. While some investments would earn revenue, others, such as housing, would “bring social and economic benefits … just as indispensable to the national well-being”.
Costello said the need for investment was so great that past national savings would have to be drawn upon to pay for it. This would be done by repatriating some of the money invested in sterling assets—although it must be made “as sound and secure as anything which can be obtained … abroad”. He said the Government was determined to extirpate evils such as infertile land, lack of housing and shortage of hospital accommodation, and that this would “even justify short-term economic loss for the sake of social and long-term economic gain … There are greater evils … than a temporary deficit in the Balance of Payments.” Care would have to be taken to use the money for investment rather than consumption, to balance the projects properly between sectors, and to increase savings to pay for investment. The new strategy would be signalled by a division of the Budget into current and capital sides. “Our aim is to enrich the country by augmenting the national capital and increasing productivity, by means of a comprehensive long-term programme …”186
How significant was the introduction of the Capital Budget? Brian Girvin has pointed out that if the Capital Budget heralded the arrival of Keynesian economics, “it was remarkably short lived. Subsequent budgets were deflationary, emphasising a continuing commitment to the balanced budget and a fear of balance of payments crisis.” He also observed that the Capital Budget was important, “but only if part of an overall process to facilitate growth in the economy”.187 And the increase in capital investment was only possible because of Marshall Aid—once it ran out (and until Ireland joined the World Bank and the International Monetary Fund in 1957), government simply didn’t have the access to outside capital that would allow for significant State investment.188
Even its architect, Patrick Lynch, admitted that there was “an element of charlatanism in this initiative”, since Finance already made a reduction from the current budget in respect of capital items which were deemed “proper to meet from borrowing”. But while the concept was there before Costello’s speech, afterwards “the scale increased very greatly”.189 As Ronan Fanning has pointed out, Costello had in effect taken “personal charge of the direction of budgetary policy in a manner never before attempted by a head of government since independence”.190
While Costello was telling bankers publicly of the virtues of investing capital at home, he was also putting pressure on them in private. On the day before his speech to the Institute of Bankers, he chaired a meeting with representatives of the banks in an effort to secure funding for public housing in Dublin. The Government wanted the banks to take up a £5 million bond issue from Dublin Corporation. Costello began by appealing to the better nature of the financiers, relating his experiences of “the terrible housing conditions in which many people lived”, and pointing out that the best the Corporation could do for that year was to provide a new house for families of seven living in a single room. “The Government were determined that all possible steps would be taken to improve those horrible conditions.”
This appeal was by way of preamble; Costello quickly moved on to threats. He pointed out that British banks were required to put 40 per cent of their resources at the disposal of the Treasury through Bills and Treasury Deposit Receipts, and suggested that “if the Irish banks were un-cooperative on this question of investment some Irish Government would be compelled by pressure of public opinion to adopt measures … to ensure that the Banks worked in the national interest”. For the bankers, Lord Glenavy asked “whether the present transaction would be an isolated one or whether … further demands would be made on the banks”. Costello said it would not be an isolated incident, and the bankers went off to consider their options.191 Ten days later they returned for another meeting, and haggled over the interest rate to be paid—Costello warned them, “The Government had public duties and responsibilities to the community and they were determined to discharge them …”192 The Taoiseach’s threats worked—the banks agreed to take up the Corporation loan.
But the main source of new capital investment was Marshall Aid, which financed nearly half of all state investment from 1949 to 1952.193 The impact of the aid on the Irish economy was questionable—for instance, almost one quarter of all ERP funds were used to purchase tobacco194 and the projects were of long-term rather than immediate economic benefit. Local authority house-building increased dramatically—from 744 house completions in 1947 to over 8,000 by 1950; there was also the massive investment in hospital-building under Noël Browne; and of course there was James Dillon’s Land Project, which aimed to reclaim four million acres through increased fertilization and better drainage.195 This investment, as Finance pointed out repeatedly at the time, would not show a return for many years, if at all. On the other hand, the imports and dollars involved allowed a higher standard of living than would otherwise have been the case.196 This had important political consequences—for it allowed Costello and McGilligan to satisfy the competing demands of the constituent parts of the coalition.
There were three by-elections during the life of the government. The first two saw Fianna Fáil and Labour holding their seats in Donegal East and Cork West respectively. But in November 1949, Fine Gael won a seat from Fianna Fáil in Donegal West. The contest became known as the “Platypus” election, because during it de Valera said that every time he looked at the Government in the Dáil he was reminded of an animal he had seen in Canada with “web feet, powerful claws, the bill of a duck and the tail of a lizard”.197 The by-election victory was a personal triumph for Costello, who received a “prolonged round of applause” from the Government benches in the Dáil in recognition of his achievement.198 However, the gain of a seat in Donegal was offset for Fine Gael by the resignation of Sir John Esmonde from the party in September 1950, and from the Dáil the following May, and by the death of Galway West’s Josie Mongan in March 1951.199
Just over a year into his first term as Taoiseach, the British magazine News Review described Costello’s typical day. He frequently went to early morning Mass in Donnybrook, and walked the family dachshund, Slem, in the nearby park. The Taoiseach generally spent two hours after breakfast dictating correspondence in his upstairs study, “lined ceiling to floor with books—most of them on law. Working to a background of radio music (he listens a great deal), and using a Dictaphone, he … will reel off with lucidity and speed three to six cylinders …” At 11, his car would arrive with whichever of his two drivers was on duty, along with Mick Byrne, his ADC.
In Government Buildings, his first-floor office “is the same as it was in Dev’s time. The sage green Dun Emer carpet with mauve and gold border has been down nearly 25 years … There is a map of Ireland in a vivid blue sea, a safe, indifferently open, a cupboard of rolled maps and plans, a globe, a small radio. There are two ordinary black phones on the brown desk: an internal Dictagraph, and a private switchboard on which he can call any Minister, any time.” The Cabinet met on Tuesdays and Fridays in the ground floor Council Chamber in Government Buildings, “round an oval polished mahogany table with six great brass ash trays running like a centre-piece down the middle”.
Lunch was sometimes taken with MacBride in Iveagh House, but more usually the Taoiseach went home to Herbert Park. Official entertaining at lunchtime would be in a private room in the Gresham or Russell Hotels, or for more formal occasions at Iveagh House. After lunch, Costello would return to Government Buildings until seven or eight in the evening (three o’clock on a Saturday). Speeches were drafted at night, at home in his study.
According to the News Review, the Taoiseach regularly attended weekly recitals at the RDS. “He is also fond of dancing, like
s the cinema and the theatre, but doesn’t go often now. ‘People make a fuss; you can’t slip in quietly’.” But most of his leisure time was spent at home, reading (he told the News Review he liked biography, economics and thrillers; in reality he mainly read the latter). The family also played bridge, although Costello admitted, “They’re all better than I am.”200 And of course, while he was Taoiseach, he was still the TD for Dublin South-East, and continued to deal with a wide range of constituency matters (some of them utterly trivial, such as a request from a hairdresser in Haddington Road to have him excused from jury service).201
One of the perks of the job appears to have been privileged access to new films—there are several references in his appointments diary to morning visits to the Film Censor’s Office, presumably for an advance viewing of the latest release.202 He also continued to pursue other cultural interests. He collected paintings by a number of Irish artists, presenting friends and relatives with wedding gifts of small works by Nathaniel Hone, Evie Hone, Grace Henry and William Leech. He was influenced in his collecting by his friend, John Burke the solicitor,203 who also encouraged him to collect furniture by the Dublin cabinet-maker Hicks. He had a good eye for silver, much of it bought at Weldon’s antique shop.204 He was also for many years a patron of Weir’s jewellers on Grafton Street, where he bought presents for his grandchildren. As one of them remembered, “he liked beautiful things”.205
Costello’s interest in the arts had practical implications for Government policy, as he drove developments in the area in both of his administrations. This can be seen in the attempt to secure the return of the Lane Pictures, and the establishment of the Arts Council. As Attorney General, he had been involved in the long-running dispute with Britain over the Lane Pictures. These 39 paintings—including works by Manet, Monet, Renoir and Degas—were originally left by Sir Hugh Lane to the National Gallery in London after controversy over his plans for a gallery in Dublin. Lane, a successful art dealer and nephew of Lady Gregory, had founded the Dublin Municipal Gallery of Modern Art in 1908, but had been severely disappointed by the Corporation’s opposition to his plan for a permanent home for the collection. £40,000 had been raised towards the cost of building a museum on a bridge across the Liffey, and Lane had promised that he would cover any extra cost—but the Corporation still opposed the plan “in very strong language”.206
The Reluctant Taoiseach Page 29