90 AUSTRALIA'S RELATIVE DISADVANTAGE IN 
trade’ or ‘adverse balance of trade’ is seen to depend rather on 
She ratio at which goods of one country are exchanging for the 
goods of another, or on the rising and falling advantage inci- 
dental to that trade, than upon a ‘balance’ which may be quite 
as fallacious and deceptive as a government ‘surplus’. Stated 
in another way, (i) the disadvantage in net terms may be due 
to changes in the demand or supply of international trade goods 
by which the people of one country must give more of their 
own goods in exchange for the goods of the other country than 
they did previously; or, (ii) the disadvantage in gross terms 
may be due to an over-indulgence in international credit which 
amounts to furnishing the national house on the hire-purchase 
system; a plan which may result eventually in ownership, but 
which always entails a long struggle to satisfy the demands of 
the mortgagee, and too frequently leaves insufficient living 
expenses out of the national income. In the second case the 
non-merchandise factors in overseas trade become the most 
potent of the immediate causes which depress living standards, 
expecially at those times when national production is for any 
reason suddenly diminished. 
[t must now be noted that the progress of a borrower follows 
a certain logical sequence. It will be seen that there are well- 
defined phases in the economic history of a new country which 
constitute a definite evolution from youth to maturity, an 
evolution that is determined by the relation between the 
amount of fresh capital and the interest payments on the old 
capital. A country in the early stages of borrowing, i.e. when 
the amount of fresh capital is greatly in excess of the interest 
payments, tends to have an excess of imports—an ‘unfavourable’ 
balance of trade—which may persist over a longer or a shorter 
period during which the new capital is arriving. If we assume 
a steady continuance of borrowing, it is clear that a time comes 
when the new capital arriving is just balanced by the annual 
payment for interest on the old capital, and at this point 
axports tend, approximately, to equal imports. This is a stage 
of great financial instability when the equilibrium of trade is 
most easily overset, and when the trade crisis is perennially 
imminent. But, as borrowing still continues, the annual interest 
bill comes, more or less quickly, to exceed the volume of 
new capital arriving, the country becomes a mature borrower,