The First World War brought about the virtual cessation of the normal working of the international economy. The disruption to international trade was especially serious for countries like Australia that relied on far-distant export markets and sources of imports, and on foreign-owned oceanic shipping services. Although the end of the war brought some semblance of normality, in the 1920s the world economy grew sluggishly and was beset by structural problems. Australia found the global economy a much less easy environment in which to prosper. At the end of the decade, the world was shaken by a financial crisis in the United States that quickly plunged most countries into a severe economic contraction. Primary-producing countries – Australia included – were hit particularly hard. Recovery from the ‘Great Depression’ of the 1930s was patchy. Australia’s ever-closer ties with Britain proved helpful, but without a full recovery in the industrial countries and the restoration of the mechanisms of the global economy, a return even to the subdued economic conditions of the 1920s was impossible. This chapter sets out the main international forces that impacted on Australia in these years. The next two chapters discuss Australia’s plight in more detail.

War and its aftermath

The Great War of 1914–18 was the first real crisis the early global economy had to face, and it never fully recovered from it. In some ways, the war merely speeded up economic changes that were already visible, particularly the rise to world economic power of the United States. In other respects, the war led the global economy in completely new directions. The outbreak of the war had not been expected, and it occurred during a period of rapid expansion of the world economy: world trade was growing strongly, intercontinental migration had reached record levels and international capital movements were at their height. On the eve of the outbreak of the war, British investors, for example, received almost £200 million in returns on foreign investments – twice the level of just 15 years earlier. In 1913, over one million European immigrants arrived to settle in the United States.