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Rethinking the Australian Dilemma

Economics and Foreign Policy, 1942-1957


Bill Apter

This book explains how and why, Australian governments shifted from their historical relationship with Britain to the beginning of a primary reliance on the United States between 1942 and 1957. It shows that, while the Curtin and Chifley ALP governments sought to maintain and strengthen Australia’s links with Britain, the Menzies administration took decisive steps towards this realignment.

There is broad acceptance that the end of British Australia only occurred in the 1960s and that the initiative for change came from Britain rather than Australia. This book rejects this consensus, which fundamentally rests on the idea of Australia remaining part of a British World until the UK attempts to join the European Community in the 1960s. Instead, it demonstrates that critical steps ending British Australia occurred in the 1950s and were initiated by Australia. These Australian actions were especially pronounced in the economic sphere, which has been largely overlooked in the current consensus. Australia’s understanding of its national self-interest outweighed its sense of Britishness. 

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2 The War Economy



The War Economy

“All wars … involve revolutionary processes which tend to hasten movements within the social framework.”1


This chapter does not seek to provide a full account of the Australian economy in the Second World War –this has already been written by the Official Historians, the Deputy Director of the Department of War Organisation of Industry (DWOI) and within stand-alone accounts in other histories of the war.2 What this chapter attempts is more trans-disciplinary: to explain the effects of Australia’s wartime economic changes upon its diplomatic relationships, especially with Britain and America.

These were not the only post-war transformations. However, they had a significant bearing on Australian foreign policy. Despite this, like much economic history, their effects are regularly overlooked. Instead, accounts of the period tend to emphasise the high politics of strategy or military or cultural impacts of war.3 In February 1942, the surrender of Singapore, the bombing of Darwin and fears of an imminent Japanese invasion threw Australia into crisis. Even so, the War Cabinet found the time to consider and accept the implications of American demands for general relaxation of trade barriers as a result of Article VII of the Mutual Aid Agreement.4 Consideration of economic factors should be equally to the fore in our understanding of the period.

Australian economic historians have underlined the importance of the Second World War to their field, calling it variously, “the point in Australian economic...

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