Australia in the Great Depression - Article Example

Name: Tutor: Title: Australia in the Great Depression Institution: Date: Introduction The great depression was a an economic disaster that resulted to a turn down in the international trade, people’s income, revenue form taxes, inflated prices and reduced profits. In other words, there was no money circulating among the people and people could therefore not be able to buy anything. Businesses were therefore not making nay money and this meant that there were no jobs in the affected regions. This disaster started in 29th October 1929, a day that came to be known as the Black Tuesday. On this day, the Wall Street stock market in New York also crashed and such is an indication of a striking decline in the stock prices across various areas of the stock market. Under normal circumstances, such crashes may be caused by over valuations of the current stocks or anxiety and panic among the investors as a result of social or political events. However in the case of the Great Depression, the exact cause is debatable and people have come up with many theories over the cause of the great depression. However, there is one common compromise that one major event that led to the depression was panic due to large scale lack of confidence and this led to deflationary effect on prices and income. Australia, just like the United States also suffered the Great Depression. In Australia, the Great Depression led to fall of various commodity prices, high levels of unemployment and reduction in the population of the big cities in Australia as those who could not get employment went back to the rural areas to look for agricultural work. During that time, Australia had also incurred a lot of debts due to the infrastructural development work that it was carrying out during the 1920s plus the reduced economic activities saw decrease in revenue collections. The country found itself in risk of failing to pay the foreign debt. To help the situation, the Bank of England sent an envoy to Melbourne to persuade the government to stop government spending, to stop the public works and decrease the salaries of members of public service and also decrease their benefits. At this point they signed the “Melbourne Agreement” (Schedvin, 1970). How Australia entered the great depression In the early 1920s, Australia decided to take advantage of the economic and financial prosperity of countries such as Britain and the United States by borrowing large amounts of money from them. The money borrowed was however used in developing the infrastructure hoping that they would repay the money with the great sales of their exports from wheat and wool. However, in the mid 1920s, the prices for Australia’s exports began to fall as their demand also declined in the world market. By 1929, London refused to offer more loans to Australia. In the same year, the world economy also declined as the Wall Street stock market collapsed. The economy of the United States and Britain also collapsed and they started calling for repayment of their loans so that they can stop the effects of depression in their countries. Australia was among the countries that had huge debts and they found themselves struggling in the hitting depression (Meredith & Dyster, 1999). What caused the Australia’s Great Depression? Australia was the first country to go into the Great Depression. One of the reasons why Australia was affected by the depression was due to its reliance on export based economy. Australia’s economy was in 1920’s and 1930’s supported by main export commodities which are wool and wheat. In 1929, when the Wall Street stock market in New York crashed, the prices of these two commodities greatly went down. The first one to decline in price was wool which was later followed by wheat. This is because when the world economy fell, the demand for these Australian goods reduced. This is the reason why Australia was the first country to go into the depression. Australia relied greatly on its trade with the United Kingdom and when UK also went into recession, its demand for the Australian goods went down. This worsened the situation in Australia. Australia used to import large amounts of capital goods from UK and sold them to the agriculturalists and also for raw materials on other industrial works. When other countries were unable to import goods from Australia, the manufacturing capabilities of Australia went down further worsening the situation. Overseas markets were in one way responsible for the fall in economic performance of the countries affected by the great depression including Australia. Between 1924 and 1925, the prices for Australian exports and the country’s terms of trade reached their peak. This was followed by a sudden and steep price decrease. For the next four years up to 1929, the export income in Australia remained lower by 15 percent of how it was in 1924-1925. This was regardless of the large volumes of commodities that Australia sold abroad. The deflation that occurred in the world commodity markets brought further a 20 percent decrease in the Australia’s terms of trade. This forced Australia to put more efforts so that it can buy imports of an equivalent amount. Two years later, that is, 1926-1927, the import bill peaked more than the export bill. This was due to increase in domestic employment and also production was at its fullest. The great number of employed people and the high production rate raised the demand for imported producer and consumer goods as well as the demand for imported producer and capital goods. There was therefore a deficit in the balance of the merchandise trade plus slackening of imports, deepening unemployment and cut backs in domestic production towards 1929. Larger cargos in and out of Australia expanded the overseas bills such as shipping bills and freight insurance. With all this, the Australian economy’s international debt worsened. Another factor that led Australia into great depression was that in the twenties, there was a lot of industrial development that took place in Southern Australia. A lot of people joined the industrial workforce and this led to an increase in the number of working people especially in Adelaide. This also led to increased revenue for the government through increased tax collection. The number of workforce therefore became a major contribution to the sources of government funds. Now when the country was hit by the First World War, there was major dislocation in the Australian economy, there was great industrial unrest. This disrupted one of the major contributors to the Australian economy. During the war, thousands of people were killed, others fled leaving their jobs and various industries were also disabled. When the country was recovering from the war, there was a very large number of unemployed people. The large number of working class therefore turned to a large number of unemployed people. There was therefore low income among the population which resulted in reduced purchasing power and thus reduced economic activities. Unemployment was one of the characteristic of Australia during the period of the Great Depression. Even before the Wall Street stock market collapsed, unemployment was already high in Australia and had hit ten percent (Schedvin, 1970). Another cause of depression in Australia was the large foreign debt that the country had incurred earlier. Before the depression, Australia was building its infrastructure and had therefore accumulated a large amount of debt. When the depression started, revenue and taxes collection were reduced since economic activities were very low. This made Australia unable to pay debts. The signing of the “Melbourne Agreement” resulted in unavailability of money during the depression. The high rate of unemployment in Australia during the great depression was caused by the fact that Australian government did not have a centralized unemployment assistance program even before the depression. The unemployed people used to depend on relief form charity organizations and private organizations. Other programs that were relied on were the employment projects and public works projects which were funded by the state government with loans obtained form overseas. The lack of a stable program led to the massive unemployment when the depression struck (Cooksey, 1970). Impacts of the great depression in Australia Social impacts The great depression had devastating impacts on the society in Australia. This was due to loss of work and income for mist families forcing them to live in poor conditions. People could compromise to all situations just to earn a living. Many children dropped form schools at the age of thirteen years to go and seek casual employment which was also hard to get. Women suffered most as they carried the larger part of the domestic burden. They could work all day doing hard casual jobs since the role of home making was considered to belong to a woman (Smith, 2003). At the end of the day they still could do their domestic works. Younger people could find jibs easily but the jobs did not have a future and they could therefore be sacked at the age of sixteen or twenty- one years. Migrants especially from Southern Europe and Italy were being disliked and worked for fewer wage that others. Political consequences During the great depression, many Australians lost confidence in the capability of their government representatives. Political consequences The members of the public felt large scale dissatisfaction and therefore formed radical organizations that gathered strength and popularity. On the [political scale, communists, socialists and unemployed people’s organizations aggressively protested against forced house evictions while on the other hand nationalists and other groups enjoyed entry into political bodies. The new Australia’s capital city of Canberra was rapidly developing but buildings came to a cut short leaving almost seven thousand people in indeterminate state of housing. Many working people were laid off and the Federal Capital Commission, an organization that was responsible for developing the city was brought to an end. How Australia recovered from the Great Depression Australia recovered from the great depression at a very slower rate compared to other developed countries. This could be blamed on the approaches taken by the Prime Minister Joseph Lyons which were conservative and cautions. In his approach, he did not come up with a formal plan for economic recovery for example on reforms of the banking system, or socialization of the economy as it was the case with other countries such as the United States and the United Kingdom (Dyster & Meredith, 1999). The recovery in Australia began at around 1932 and all this was the effort of Lyons. He chose to take tough economic measures described in the “premier’s plan”, followed a traditional fiscal policy and turned down the NSW Premier Jack Lang’s proposals to default repaying of the overseas debts. Since Australia entered the depression with a crisis in both the debt and the credit, Lyons saw it necessary to first balance the budgets, reduce the costs to the businesses and restore the lost confidence among the Australian nationals. This saw Australia gain stability and start growing economically before the Second World War. There was enforcement in reduction in the wages and protection of industrial tariffs was maintained. This together with availability of cheaper raw materials in the 1930s saw a change from agriculture to manufacturing that saw reduced numbers of unemployed people (Thomas,1988). The recovery process reduced the rate of unemployment from 29 percent when it was at its peak in 1932 to 10 percent in 1939. The industrial output also increased again. Conclusion The great depression was a big disaster that hit the economy of the world’s developed nations in 1929. However, it was a great economic lesson to a country like Australia since its reliance on debts form stable economies resulted to it being part of the depression. During the depression Australia face a lot of difficulties but however came to recover from it later. The measures that the then Prime Minister took were of great importance to the future of Australia that saw its economy withstand the Second World War. Bibliography Meredith, D. and Dyster, B. (1999) Australia in the Global Economy: Continuity and Change, Cambridge University Press, Cambridge. Schedvin, C.B., 1970, Australia and the Great Depression: A study of the Great Depression and policy in the1920s and 1930s, Sydney University Press, Sydney. Thomas, M., 1988, Manufacturing and economic recovery in Australia 1962-1937, in Recovery from the Depression: Australia and the World Economy in 1930s, Cambridge University press, Melbourne. Cooksey, R., 1970,The great depression in Australia, Australian Society for the Study of Labour History, Melbourne. Dyster, B., & Meredith, D., 1990, Australia in the international economy, in the twentieth century, CUP Archive, Cambridge. Smith, K., 2003, Australian battlers remember: the Great Depression, Random House Australia. Read More