Recovery from the 1890s Depression : Australia in an Argentine Mirror

The 1890s depression in Australia was both deeper and more prolonged than those in Argentina, Canada or New Zealand. In the Australian literature the severity of the depression is explained as resulting from the magnitude and speculative nature of the preceding boom and the impact of a severe drought. Drawing especially on Argentine experience, it is suggested here that additional factors should be considered. First, a trend effect disguised by the drought is that the limits of extensive farming were reached earlier than in Argentina (and Canada), restricting the scope for rapid recovery after world commodity prices turned up in the mid-1890s. Second, the growth of GDP in Australia prior to 1890 may have been based to a greater degree than in the other economies on unsustainable rates of consumption of the stock of natural resources. Third, the unwillingness or inability of Australian governments to reschedule their foreign debt burden or to depreciate the exchange rate (both of which were undertaken in Argentina) resulted in a policy-induced exacerbation of the slump