1861 was a remarkable year in many respects. In April 1861 at Fort Sumter, the four year conflict began that conclusively determined that individual States could not secede from the United States (thereby settling whether the correct grammar was “the United States are” or the “United States is”)—that stamped its mark on the political, social and economic nature of today’s foremost economic and world superpower. Far away (in what later became Australia), April 1861 more or less marked the end of the Gold Rush decade that had begun in February 1851 in NSW and in July 1851 in Victoria.
The Gold Rush was an extraordinary decade for the Australian colonial economies, especially for Victoria, and shaped a great deal of their political, social and economic futures. Growth was explosive: Australia’s non-Aboriginal population grew from 438,000 people to 1,168,000 and the nominal value of colonial income per capita rose 89% over the decade.  (For Australia’s Aborigines, this decade, along with the rest of the nineteenth century, was a radically different and adverse story.) While gold initially dominated activity (the value of gold produced in 1852 was around two-thirds of colonial GDP), the subsequent economy diversified with more complex manufacturing and services and a large investment in infrastructure and education.  During the Gold Rush decade most Australian colonies became (partially) self-governing, with the shape of colonial democracies influenced by the new arrivals—especially in Victoria after the Eureka Stockade. Melbourne quickly became Australia’s second city and many new towns and cities in Victoria (such as Ballarat and Bendigo) began.
The Gold Rush Australia was an “endowment shock”—enormous increases in population and (literally) income, given that gold was the currency of the day. Thanks to sound public policies, there was enough arable land to turn many diggers into farmers. The closeness of Melbourne to the Victorian gold discoveries, the development of new technology and the markets of the British Empire that underpinned new industries, meant that most of the new arrivals stayed. From the 1860s onwards, they had built a high income economy, a relatively egalitarian society, formulated and adopted relatively advanced and progressive (for their day) social policies and built a participative and mandatory democracy. By the end of the nineteenth century, colonial Australians enjoyed the highest living standards in the world. (It was, sadly, a vastly different picture for Australia’s Aborigines who generally experienced a fall in living standards and population for much of the nineteenth century.)
… and now (more or less)
Some 150 years further on, Australia is a vastly different economy and society. There are some parallels, it is true, particularly in our recent economic history. The past fifteen years have seen the largest commodities boom since the Gold Rush decade, despite being briefly punctuated by the Global Financial Crisis. (That said, in relative terms, the recent commodities boom had a much smaller impact on the Australian economy than the Gold Rush— mining accounted for around 10 per cent of the gross product by industry, compared with almost 40 per cent in 1852.)
There are other indicators of our progress. Our population in 2015 is more than twenty times the size of the colonial population in 1861, is significantly older and is a great deal more diverse in every respect.  Our economy is a great deal more open, complex and diverse, with more than half of our GDP coming from services.  It is a mixed economy— predominantly a market-based economy in which competition is a powerful force for productivity, but also an economy in which the public sector plays a major part. We have built a rich country’s stock of economic and social infrastructure—education, transport, utilities, health and communication. And we are one of a very small number of economies that is rich, exports predominantly commodities and agricultural produce and relies on sustained foreign borrowing to finance our economic development.
Just like the 1860s and beyond, Australia today is passing through a major economic adjustment following the end of the commodity prices boom and the temporary boost to our exchange rate and incomes. Unlike then, we do not have large untapped frontier resources, especially new arable land. This time, part of our challenge is to pursue the policies of economic reform that will lift productivity growth and living standards in the long term (and to replace permanently the income boost we enjoyed for a decade or more from the commodity prices boom)
These policies include:
- achieving internal balance in fiscal and monetary policies;
- continuing reforms in markets and public sector service provision;
- investing in education and health to underpin lifetime employment opportunities, productivity and personal well-being;
- further reforms to strengthen competition as the key driver of economic efficiency;
- better incentives to participate in the employed workforce; stimulating and encouraging innovation; and
- ensuring regulatory regimes achieve an efficient balance between the public interest while avoiding inefficient dead-weight burdens.
There will be plenty of opportunity and stimulating challenges for graduates interested in, joining in, and contributing to developing these policies. It is a very good time to be an economist.
Dr Matthew Butlin is the National President of the Economic Society of Australia and an honorary professional fellow at the Monash Business School. In addition, Dr Butlin currently holds the position of Chair of the Victorian Competition and Efficiency Commission.
 Simon Ville and Glenn Withers (eds), The Cambridge Economic History of Australia (2014), Cambridge University Press.