92 AUSTRALIA'S RELATIVE DISADVANTAGE IN
payments would bring about, at the date when reversal of the rela-
tions began to set in, a slow and gradual readjustment, not a sudden
overturn. The borrowing country would almost imperceptibly accom-
modate itself to a new situation, in which specie would seep out,
prices gradually fall, merchandise exports rise and imports fall.
A “favourable” balance would become in time a settled feature of
its international trade. In fact, however, the loans from the creditor
sountry, so far from being made at the same rate year by year,
oegin with modest amounts, then increase and proceed crescendo.
With the advent of a crisis, they are at once cut down sharply, even
sease entirely. The interest payments on the old loans thereupon
are no longer offset by any new loans, they become instantly a net
charge to be met by the borrowing country. A sudden reversal takes
place in the debtor country’s international balance sheet; it feels
the consequences abruptly, in an immediate need of increased re-
mittances to the creditor country, in a strain on its banks, high rates
of discount, falling prices. And this train of events may ensue not
once only, but two or three times in succession.’
The underlying causes of 1893, and of every other major crisis
in Australian history, have never been more clearly stated. The
true facts of the situation are that we have suffered in the past
and are suffering in the present not from the effects of the
business cycle but from the natural accompaniments of the
borrowing cycle. Our progress, like that of Dante, has been
through a series of heavens each one more glitteringly radiant
than the last; but, to our discomfort, we have discovered that
bo each paradise is annexed a peculiar and appropriate purgatory
wherein the errors of misapplied capital may be expiated.
Returning now to the discussion of Australia’s relative dis-
advantage in overseas trade after 1890, it will be seen that the
terms of trade tend to favour the borrower during the early
stages of the international credit cycle; but that continued
borrowing swings the balance of advantage more and more
towards the lender. Over the whole period of borrowing and
repayments, however, the balance of advantage tends to be
nicely adjusted in the figures of international indebtedness, and
she ultimate gain or loss is not likely to be great on either side.
In the long run’, nevertheless, is poor consolation to the com-
munity caught in the toils of commercial crisis, and ‘while the
grass grows the horse dies’.
The consequences to be predicted from a sudden stoppage in
