Australia And The Great Depression

Why did Australia lead the world into Depression in the late 1920s and suffer its effects so gravely and for so long?

Australia suffered significantly during the Great Depression of the late 1920s. Australia was one of the worst effected countries in the World. This essay will look at why Australia lead the world into Depression in the late 1920s and why it suffered from it's effects for so long. A depression is defined as "A period of drastic decline in a national or international economy, characterized by decreasing business activity, falling prices, and unemployment." 1 During a depression money becomes limited which in turn leads to businesses going bankrupt and causing workers to lose their jobs. This usually leads to a downward spiral that can continue for some time. The Great Depression was one of the most severe depressions in modern times. A depression can be situational, regional or even global. The Great Depression is considered to have begun in 1929 after the stock market crash in Wall Street. 8 The effects of this depression were felt around the entire world. This caused a ripple effect onto the rest of the world due to the large dependence on the American economy. Australia had already been in a bad economic situation with high government loans and large unemployment 9. This essay will look at the causes of the depression in Australia. It will look at why the export based economy of Australia caused Australia to become one of the hardest hit countries of the depression, why Australia's economic policies were inadequate to help the Australian economy recover, and finally look at why Australia's large foreign debt caused it to suffer so gravely from the depression.

The export based economy was one of the main reasons why Australia was hit so hard during the Great Depression, and was the reason why Australia was the one of the first countries to go into the depression. "The main burden is being borne by the growing numbers of unemployed and by the primary producers, who depend upon the export market... To the thousands of Australians out of work through no fault of the own it is small consolation to say that it is the lot of many millions of people in the world today. It is only natural for the unemployed to regard the situation which confronts them as a challenge to our whole social system." 7 Two of Australia's main exports during the late 1920's and the 1930's were wool and wheat. 2 "in 1929 wool prices fell disastrously, followed by wheat prices in 1930." 2 When the world economy collapsed, the demand for Australian goods collapsed as well. Australia was one of the first to go into the recession due to this. Australia was very reliant on trade with the United Kingdom 10. When the UK went into recession their demand for Australian goods fell. This caused Australia's situation to worsen. Australia would import large amounts of industrial capital and manufactured goods from the UK and sold them agricultural goods and raw materials. 2 With the reduced amount of goods being imported from Australia, Australia was unable to continue importing the capital goods from the UK. This lead to a reduction in manufacturing capabilities in Australia, which in turn further worsened its situation. The use of the Gold-Standard prevented Australia from using a devaluated currency to offset the decrease in demand. 8 With a floated currency, the value of the Australian dollar would have decreased making Australian goods cheaper to buy. This in turn could have had a small impact in reducing the severity of the depression on Australia. Australia finally recovered from the great depression after much of the rest of the world did. Still reliant on exports to support the economy, Australia had to wait until prices for primary goods (agricultural and raw minerals) to stabilize around the world before it was able to recover.

Australia was one of the hardest hit countries during the depression. For most of the developed world, the great depression occurred during the Wall Street stock market crash in 1929. 8 For Australia, a depression was already apparent before the crash. 11 Before the crash, the unemployment rate was already at 10 percent, 11 which was far greater then the other world economies at that time. This represented a 4% increase in unemployment over a short period of time and is one of the reasons why Australia was one of the first countries to enter into the great depression. During the Great Depression, the unemployment increased to a high of 32% unemployment. 11 Australia's unemployment rates were some of the highest in the world. The United States peaked at 24.9% unemployment during the depression. 4 The United Kingdom had unemployment at 20%. 5 Australia suffered far worse then most countries due to its export economy. Due to the fall in demand for exports, downward pressure was placed on worker's wages, especially in industries of raw goods such as agriculture and mining. With the large amounts of unemployment, many Australians left major cities to find work in agricultural areas of Australia. 10 This led to a large depopulation of Australian cities. Due to the reduction in wages, many strikes were carried out by workers who wanted better pay. One of the worst of these strikes was the Coal miner's strikes in the winter of 1929. "There were the attacks on and arrests of striking timber workers in 1929 and the shooting down of coal miners at Rothbury that same year." 3 Australian police shot one of coal miners which caused a lot of unrest. This large amount of unrest in Australia, and the generally high level of unemployment throughout the country is why Australia was one of the worst hit countries during the depression.

The large foreign debt that Australia held before the depression caused the effects of the Great Depression to be so grave. Before the depression, Australia was building large amounts of infrastructure. 2 This led them to accumulate large amounts of debt. The depression caused a reduction in economic activity which in turn lead to a reduction in tax revenues. With the reduction of the amount of tax revenue the government was earning, it made it very difficult for Australia to pay back its loans. Fearing that Australia would default on its loans, The Bank of England sent an envoy to the Australian government. Sir Otto Niemeyer told the government at a conference in Melbourne that they needed to limit government spending.

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