The financial future guessing game

In October last year I quoted Australian economist in a number of articles. Dr C.B. Schedvin is not without qualification. At the time of the publication of his book, Australia and the Great Depression, in 1970, he was Senior Lecturer in Economic History at the University of Sydney. He was joint editor of the Australian Economic History Review, and co-author with Professor S.J. Butlin of War Economy 1942-45, published in the official history of Australia in the War of 1939-1945.

I put this before the reader to demonstrate that Schedvin’s book may have dropped off our radar in recent years, probably because we believed that a second Great Depression, like a second World War, was not possible.

Schedvin argues that: “The central point ... is that deliberate policy measures were comparatively unimportant in influencing the nature of the contraction or the speed of the recovery.” This is something that the government, the Treasury and the Reserve Bank might examine and give consideration to.

Schedvin continues:

Contrary to the widely-held belief about the high degree of control exercised by policy-forming instrumentalities during the depression, it appears that policy merely followed the market in most instances ... the Australian economy was rendered acutely vulnerable to international disturbance by the end of the decade (1920s) ... It was this vulnerability which explains in large measure the sharpness of the early contraction ... It also accounts for the succession of hastily-devised expedients which were subsequently described as policy innovations.

And here is the rub:

... the massive withdrawal from the international economy that was forced during the early 1930s predicated the nature of the recovery process ... it was on the basis of import replacement of manufactures that recovery was forged ... a number of policy expedients helped, almost accidentally to moderate the decline in income and employment, it remains true ... that economic policy played little part in shaping the course of the depression in Australia. What was gained by exchange devaluation and by deficit financing in 1930-1 ... was lost in 1931-2 following the fall in public expenditure ... between mid 1931 and 1935 most aspects of policy retarded the process of recovery ... The modicum of unemployment relief expenditure that was sanctioned was not only totally inadequate but was also distorted by an unrealistic insistence that expenditure be confined to “reproductive” works.

In an observation that should resonate with the media, commentators and academics, but not with the opposition, Schedvin notes that, “More surprising than the ineffectiveness of recovery policy is the absence in Australia of any significant intellectual or official dissatisfaction with established policy doctrine”.