It is one of the great literary hoaxes, but the Ern Malley affair has never been widely known outside Australia. Peter Carey is about to change that, writes Pádraig Collins

In 1943 Max Harris, the precocious 22-year-old editor of the Melbourne-based Angry Penguins literary journal, got a letter from a Sydney woman called Ethel Malley. "When I was going through my brother's things after his death I found some poetry he had written," she wrote.

Harris, a poet, writer and outspoken leader of Australia's nascent modernist movement, was immediately impressed by her brother's work. "Here was a poet of tremendous power, working through a disciplined and restrained kind of statement into the deepest wells of human experience," he later recalled.

As far as Harris was concerned Ernest Lalor Malley, who had died at the age of 25 on July 23rd, 1943, of Graves' disease, a condition of the thyroid gland, was an undiscovered genius.

Harris wrote back to Ethel, telling her that Ern was "one of the most remarkable and important poetic figures of this country". The June 1944 issue of Angry Penguins featured every poem Malley's sister could find among his belongings. The 35 pages of his life's work were portentously titled "The Darkening Ecliptic". One of Australia's finest artists, Sidney Nolan, painted the cover.

Harris wrote beautifully and reverentially in his introduction. "Ern Malley prepared for his death quietly confident that he was a great poet and that he would be known as such . . . He treated death greatly, and as poetry, while undergoing the most fearful and debilitating nervous strain that a human being could possibly endure . . . I am firmly convinced that this unknown mechanic and insurance peddler is one of the most outstanding poets that we have produced."

Harris believed the discovery of Malley would make him and his magazine famous. And why wouldn't he? The poetry was brilliantly written by a working-class man who died tragically young. John Reed, Angry Penguins's financial backer and Harris's co-editor, also loved Malley's work, and Nolan was on board. What could go wrong?

In Adelaide, Harris's home town and the birthplace of Angry Penguins, he was immediately accused of writing the poems himself. One of his former lecturers, Brian Elliott, wrote in the Adelaide University paper that he was impressed by the poems but thought Harris had created them as self-satire. "Is Malley, Malley or Malley, Harris - or who?" he wrote.

Then Sydney's Sunday Sun newspaper revealed - on its front page - that Malley never existed, that his poetry was a massive hoax. James McAuley and Harold Stewart, two conservative poets with an abiding hatred of modernist poetry, had invented Malley and written his entire canon in an afternoon. They had cut and pasted words and phrases from Shakespeare, dictionaries and a report on mosquito breeding grounds.

Not a little pretentiously, they later wrote: "It proves that a literary fashion can become so hypnotically powerful that it can suspend the operation of critical intelligence in quite a large number of people."

Harris was mocked, vilified and disgraced for being so gullible. Malley became an unlikely star. Politicians and, unsurprisingly, the Catholic Church turned on Harris and Angry Penguins.

Then, just when it must have seemed things couldn't possibly get worse, a Detective Vogelsang told Harris he was making inquiries about the affair "with respect to immoral or indecent publications".

In his book The Ern Malley Affair, Michael Heyward recounts that in September 1944 Harris went to court to defend Ern Malley against charges of obscenity.

The prosecutor, D. C. Williams, said references to sex and sexual matters "were dragged in by the heels, without any reference to the context".

In his ruling the judge wrote that Harris displayed "far too great a fondness for sexual references . . . I cannot but regard it as an unhealthy sign even from a literary point of view. Boldness in sexual reference is too often mistaken for brilliance. I think that the defendant should either acquire that art of delicacy in the handling of sexual topics which is so necessary in literature or avoid the topic altogether".

Harris was fined £5 in lieu of six weeks' imprisonment and ordered to pay costs of more than £21. He vowed to appeal the conviction but never did.

Peter Carey, along with anyone else in Australia with an interest in literature, grew up knowing the Malley story and was always fascinated by it. Several years ago a writer friend who had known Harris showed Carey a copy of the Malley edition of Angry Penguins.

Carey told Sydney's Morning Herald newspaper: "He told me Max Harris said: 'Mate, I've been made about as big a fool of as anyone's been made a fool of, and no one's ever going to make one of me ever again.' I thought that was the saddest thing."

His fascination eventually led him to write My Life As A Fake. "The way to think about the book and what I've done is to listen to a jazz improvisation that starts with a known melody and f***s with it.

"Think of Miles Davis playing Bye Bye Blackbird. That's what I wanted to do, and it's very exciting to me.

"It's not about Ern Malley, but if you can't get that out of your head I hope you'll find a whole lot of beams of light have been shone on [the hoax\]," Carey said. "In the end the poetry won. You can't call the poems fake. Ern lives."

In one of the terrific ironies that makes a good story great, the hoaxers never achieved the fame as poets that they wanted. McAuley became a magazine editor while Stewart moved to Japan and studied Buddhism. But the poems of their alter ego were republished and influenced a younger generation of Australian poets, such as John Forbes and John Tranter.

Max Harris wrote years later that, despite all that had happened to him as a result of the hoax, "I still believe in Ern Malley". Michael Heyward wrote: "Malley has become a legendary figure in Australia, one of a handful of names - like Phar Lap, the tragic racehorse, or Ned Kelly, the noble bushranger - embedded in the national psyche . . . He is the only genuinely avant-garde writer in a country which has never sponsored a literary revolution."

My Life As A Fake by Peter Carey is published by Faber on September 18th. The Ern Malley Affair by Michael Heyward is republished by Faber on October 16th

Who owns Ern?

There is now a legal fight in Australia over who owns the copyright to the 16 poems written by Ern Malley.

Max Harris and Harold Stewart died in 1995, James McAuley has been dead since 1976 and Ern Malley, the poet who never was, "died" 60 years ago.

Faber and Faber, the publisher of Heyward's book, got permission from the estates of McAuley and Stewart to reproduce all the Malley poems and related papers. Tom Thompson, who represents the Harris estate, has controlled publication of the poems from Angry Penguins in other publications.

But a private, unsigned letter McAuley wrote to Stewart in 1960 says: "I don't know what the position really is about copyright. I rather think that Ethel Malley made a present of all rights to the editors and I don't feel like precipitating a complicated legal contest by now claiming rights which we never asserted in our own persons."

Forged verse: A piece of Ern

I / Who have lived in the shadow that each act Casts on the next act now emerge As loyal as the thistle that in session Puffs its full seed upon the indicative air. I have split the infinite. Beyond is anything.