Economic history of Australia
The economic history of Australia traces the economic history of Australia since European settlement in 1788.
1788–1821
The European settlement of Australia began on 26 January 1788 at Port Jackson, when the First Fleet arrived with more than 1,000 convicts, marines and a few free settlers, plus a vast quantity of stores to establish a penal colony in New South Wales. The United Kingdom claimed all of eastern Australia as its territory on the basis of terra nullius, though the actual landing and consequent settlement was initially confined to the Port Jackson area. According to the first census of 1788, as reported by Governor Phillip to Lord Sydney, the Home Secretary, the white population in the colony was 1,030, of which 753 were convicts and their children; the colony also had 7 horses, 2903 sheep, 749 swine, 6 rabbits, and 754 cattle. The Indigenous population was not counted or estimated, nor reported at that point. More settlers came with the arrival of the Second Fleet in 1789, and the Third Fleet in 1791, with other convict transports in the years that followed.Governors of New South Wales had authority to make land grants to free settlers, emancipists and non-commissioned officers. Land grants were often subject to conditions, such as a quit rent and a requirement for the grantee to reside on and cultivate the land. Whaling in Australia commenced in 1791, when Captain Thomas Melvill, commanding Britannia, one of 11 ships of the Third Fleet, and Captain Eber Bunker of William and Ann, after landing their passengers and cargo then went whaling and sealing in Australasian waters. Seal skins, Whale oil and baleen were valuable commodities and provided Australia with its first major export industries. Sealing and whaling contributed more to the colonial economy than land produce until the 1830s. When Governor Phillip left the colony in December 1792, the European population was 4,221, of whom 3,099 were convicts.
Hobart in what was then called Van Diemen's Land was established in 1804 as a penal settlement. It was founded more to forestall a possible French claim to that part of Australia than for any immediate economic benefit to the Sydney settlement.
The colony of New South Wales barely survived its first years and was largely neglected for much of the following quarter-century while the British government was preoccupied until 1815 with the Napoleonic Wars. One very important British oversight was the provision of adequate coinage for the new colony and, because of the shortage of any sort of money, the real means of exchange during the first 25 years of settlement was rum. Though it did not solve the problem arising from the lack of coins, but in an attempt to put some order into the economy, in 1800, Governor Philip Gidley King set the value of a variety of foreign coins circulating in New South Wales. During this period the New South Wales Corps, whose officers had benefited most from access to land and imported goods, defied the authority of the governors. The New South Wales Corps was recalled in 1808.
Governor Macquarie was appointed in the following year. There was a change of policy under his administration towards the promotion of a private economy to support the penal regime, separate from the activities and interests of the colonial government. There was a significant increase in transportation after 1810, which provided cheap and skilled labour for the colony. As laborers, craftsmen, clerks and tradesmen, many convicts possessed the skills required in the new settlements. As their terms expired, they also added permanently to the free population.
The Blue Mountains were a barrier to the expansion of the colony. The crossing of the Blue Mountains in 1813 enabled the settlers to access and use the wealthy land west of the mountains for farming. Bathurst was established as Australia's first inland settlement. The first bank in Sydney, the Bank of New South Wales, was established in 1817. The Bank, and each private bank established afterwards, could issue its own paper money. During the 19th and early 20th century, the Bank of New South Wales opened branches, first throughout Australia and Oceania, including branches at Moreton Bay in 1850, then in Victoria, New Zealand, South Australia, Western Australia, Fiji, Papua and Tasmania.
In line with the British government's policy of concentrated land settlement for the colony, Governors of New South Wales tended to be conservative in making land grants. By the end of Macquarie's tenure in 1821, less than 1,000 square miles of land had been granted in the colony. Above all, agriculture was established on the basis of land grants to senior officials and emancipated convicts, and limited freedoms were allowed to convicts to supply a range of goods and services. Although economic life depended heavily on the government Commissariat as a supplier of goods, money and foreign exchange, individual rights in property and labour were recognised, and private markets for both started to function.
1821–1840s
According to a 2018 study in the Economic History Review, "Australian GDP per worker grew exceptionally quickly from the 1820s to the 1870s, at a rate about twice that of the US and three times that of Britain." This rapid growth in GDP per worker did not however lead to rising inequality but rather a "revolutionary levelling in incomes up to the 1870s".During Governor Brisbane's 4-year term land grants were more readily made. In addition, regulations introduced during Brisbane's term enabled settlers to purchase up to 4,000 acres at 5s an acre. During his term, the total amount of land in private hands virtually doubled.
Those known as 'free settlers' were only permitted to take up land within the approved areas, which from 1826 was confined to the Nineteen Counties of the Sydney settlement. From 1831 the granting of free land ceased and the only land that was to be available for sale was to be within the Nineteen Counties. Despite the uncertainty of land tenure, squatters ran large numbers of sheep and cattle beyond the boundaries. From 1836 they could legally do so, paying ten pounds per year for the right.
From the 1820s economic growth was based increasingly upon the production of fine wool and other rural commodities for markets in Britain and the industrializing economies of Northwestern Europe. To finance this trade a number of banks set up in London in the 1830s, including the Bank of Australasia in 1835 and the Union Bank of Australia established in 1837. This growth was interrupted by two major depressions during the 1840s and 1890s and stimulated in complex ways by the rich gold discoveries in Victoria in 1851, but the underlying dynamics were essentially unchanged.
At different times, the extraction of natural resources, whether maritime before the 1840s or later gold and other minerals, was also important. Agriculture, local manufacturing and construction industries expanded to meet the immediate needs of growing populations, which concentrated increasingly in the main urban centres.
The opportunities for large profits in pastoralism and mining attracted considerable amounts of British capital, while expansion generally was supported by enormous government outlays for transport, communication and urban infrastructures, which also depended heavily on British finance. As the economy expanded, large-scale immigration became necessary to satisfy the growing demand for workers, especially after the end of convict transportation to the eastern mainland in 1840.
The costs of immigration were subsidized by colonial governments, with settlers coming predominantly from the United Kingdom and bringing skills that contributed enormously to the economy's growth. All this provided the foundation for the establishment of free colonial societies. In turn, the institutions associated with these – including the rule of law, secure property rights, and stable and democratic political systems – created conditions that, on balance, fostered growth.
In addition to New South Wales, four other British colonies were established on the mainland: Western Australia, South Australia, Victoria and Queensland. Van Diemen's Land became a separate colony in 1825. From the 1850s, these colonies acquired responsible government. In 1901, they federated, creating the Commonwealth of Australia.
The process of colonial growth began with two related developments. First, in 1820, Macquarie responded to land pressure in the districts immediately surrounding Sydney by relaxing restrictions on settlement. Soon the outward movement of herdsmen seeking new pastures became uncontrollable. From the 1820s, the British authorities also encouraged private enterprise by the wholesale assignment of convicts to private employers and easy access to land.
In 1831, the principles of systematic colonization popularized by Edward Gibbon Wakefield were put into practice in New South Wales with the substitution of land sales for grants in order to finance immigration. This, however, did not affect the continued outward movement of pastoralists who simply occupied land where they could find it beyond the official limits of settlement, usually in disregard for any rights of indigenous peoples.
By 1840, they had claimed a vast swathe of territory two hundred miles in depth running from Moreton Bay in the north to the Port Phillip District to Adelaide in South Australia. The absence of any legal title meant that these intruders became known as 'squatters' and the terms of their tenure were not finally settled until 1846 after a prolonged political struggle with the Governor of New South Wales, Sir George Gipps.
The impact of the original penal settlements on the indigenous population had been enormous. The consequences of squatting after 1820 were equally devastating as the land and natural resources upon which indigenous hunter-gathering activities and environmental management depended were appropriated on a massive scale. Aboriginal populations collapsed in the face of disease, violence and forced removal until they survived only on the margins of the new pastoral economy, on government reserves, or in the arid parts of the continent least touched by white settlement. The process would be repeated in northern Australia during the second half of the century.
Colonial governments and settlers did not recognise any Aboriginal land rights or sovereignty and therefore felt free to expand into their territory with impunity. The encouragement of private enterprise, the reception of Wakefieldian ideas, and the wholesale spread of white settlement were all part of a profound transformation in official and private perceptions of Australia's prospects and economic value as a British colony. Millennia of fire-stick management to assist hunter-gathering had created inland grasslands in the southeast that were ideally suited to the production of fine wool.
Both the physical environment and the official incentives just described raised expectations of considerable profits to be made in pastoral enterprise and attracted a growing stream of British capital in the form of organizations like the Australian Agricultural Company, which was granted the right to select 1,000,000 acres in New South Wales for agricultural development; and new corporate settlements were established in Western Australia and South Australia. By the 1830s, wool had overtaken whale oil as the colony's most important export, and by 1850 New South Wales had displaced Germany as the main overseas supplier to British industry.
Allowing for the colonial economy's growing complexity, the cycle of growth based upon land settlement, exports and British capital would be repeated twice. The first pastoral boom ended in a depression which was at its worst during 1842–43. Although output continued to grow during the 1840s, the best land had been occupied in the absence of substantial investment in fencing and water supplies. Without further geographical expansion, opportunities for high profits were reduced and the flow of British capital dried up, contributing to a wider downturn caused by drought and mercantile failure.
A number of London-based banks and mortgage companies were established during this period to operate in the colonies, including the Bank of Australasia, the Union Bank of Australia, and the English, Scottish and Australian Bank.