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international economy. These pressures were crucial to the ‘Australian Settlement’ in the years around Federation, where protection against imports, wage arbitration and widespread government regulation of business decisions and ownership became distinctive features of our economy. Protection increased with each passing decade until well into the second half of the twentieth century. The young Australian economics profession in the 1920s obliged the country’s political preferences by developing a unique and analytically unsatisfactory ‘Australian case for protection’.
    The same democratic institutions that protected Australia from an early Latin American-style ‘locking up of the land’ also prevented the large-scale immigration of low-cost labour from Asia. The first acts of the new Federal Parliament in 1901 excluded non-white migrants comprehensively. Subsequent interpretation of the White Australia Policy tightly restricted immigration from southern Europe before World War II.
    Australia was tied to the fortunes of the United Kingdom by sentiment, institutions and (from the early years of the Great Depression) preferential trade agreements. We therefore shared the United Kingdom’s economic underperformance through the three decades from the outbreak of World War I in 1914 to peace after 1945.
    Sluggish growth in Australia’s main market, the burdens of high protection, poorly conceived regulation and public investment, and a legacy of public debt from World War I all contributed to stagnation. From 1927, clear-minded observers could see troubles ahead. Australia’s problems were then overlaid by the Great Depression from 1929. As in 1891, the collapse of resource prices coincided with the freezing of access to international credit to produce an economic crisis.
    Unlike in 1891, deliberate if tentative policies were adopted in response: a large currency devaluation against the British pound (which had itself depreciated against gold and the US dollar); limited expansion of public works as unemployment relief; wage and interest rate cuts; and measures to ease the burden on the unemployed. These policies were conceived within an explicit if incomplete framework of shared sacrifice. They were developed, with the assistance of most leading economists, by the Scullin Labor government in its dying days in 1931 and implemented by the Lyons conservative government. The new policies helped bring about a recovery more rapid than in Britain and much more so than in the United States.
    The Great Depression left a legacy of even more pervasive regulation and diminished prospects for economic growth. The regulation of external trade and payments was extended during World War II, and its aftermath saw restrictions continue in response to foreign exchange shortages in the British-led Sterling Currency Area, of which Australia was part.
    A spike in demand for wool in 1950 and 1951, with tension and then war on the Korean Peninsula, lifted Australia’s terms of trade to unprecedented heights. The temporary surge in export prices generated a burst of high inflation. These were Salad Days of economic policy. The economists’ Keynesian insights from the 1930s were moulded into policy by advisers brought together under Curtin and Chifley and retained by Menzies after 1949. The community grumbled but was tolerant of restrictions on short-term private consumption for long-term national gain. After a short and shallow recession, inflation quickly fell to low levels. The second of Australia’s long booms followed, lasting till the early 1970s (only broken by a brief recession in 1960–61). Until the late 1960s, the country saw high productivity growth by previous standards – although it was well below contemporary performance in other developed countries. There were only modest expectations of rising incomes, combined with consistently low unemployment alongside high immigration and population growth.
    A JAPAN RESOURCES BOOM