ABSTRACT

This chapter explores the reality of using a classical foundation for economic reform in a modern world setting, using Australia in the 1980s as an example. It provides an outline of both the rationale for Australian economic reform and the mechanisms for achieving it. Classical economic theory, stemming from Adam Smith and others, suggests that the free market and free factor flows will ensure that the market clears and that resources are used efficiently. In Ireland, however, successful reform has been achieved without making reform of the exchange rate regime a vital component part. During 1984, despite interest rates remaining high, the Australian economy was recovering; unemployment and inflation were both being contained, and economic growth was speeding up. The reform process in Ireland thus appears to have been highly successful, but it is clear that Ireland has followed a different path than that of Australia.