CHAPTER XV
ANALYSIS OF THE TERMS OF TRADE
BETWEEN 1914 AND 1928
'A large country with ample natural resources and simple manners, such as Russia
or China, resembles a self-sufficing family: her real income consists mainly of her
own products; and it is not very greatly affected by the terms on which she exports
a small part of them in exchange for foreign goods. Nearly the same may be said
of the United States: for, though her economic life is very complex, and though her
people are alert to discover, and resolute to obtain, any foreign product that will
meet their needs or their fancies; yet her area is so large, her mineral resources
are so various, and the range of climate between her northern and southern states
is wide. Therefore her consumption of foreign products is relatively small; and
it is not a matter of vital importance to her whether the terms on which she obtains
her imports in exchange for her exports are very favourable. But the case is
different for a country whose natural resources are small; especially if her people
have accustomed themselves to somewhat luxurious habits of life, in which a great
part is played by imported products.’—ALFRED MarsmarL, Money, Credit, and
Commerce, p. 109.
‘An investigation has been made covering the ten years 1917-18 to 1926-7, in.
clusive, and for this decennium as a whole it has been found that Australian pro-
ducts averaging in value £125,000,000 have been exported annually, representing
almost exactly one-third of the total production of our primary and manufacturing
industries. The other two-thirds represent our local consumption of such products,
thus indicating that our local market absorbs twice as much of this produce as the
market overseas. The several industries contribute, of course, different proportions
of their total output to this export outflow. Thus of Pastoral products 649, are
exported, of Mining 59%, of Agricultural 36%, of Dairying 20%, of Forestry and
Fishery products 16%, and of Manufacturing 5%. It thus appears that the Pastoral
and Mining industries find considerably more than 50%, of their market overseas.’ —
The Commonweslth Statistician, Mr. C. H. Wickens, on ‘Some Statistical Aspects
of Australian Industry’, Economic Record. May 1929.
Ir the conclusions stated in the last chapters will bear criticism,
if it is true that the war-period was in large measure normal
in its abnormality and that the economic situation during
those years was to a great extent conditioned and deter-
mined by the orthodox functions of the borrowing cycle,
we may expect to find some confirmation in analysis of the
terms of trade. Comparing the economic phenomena with those
observed in the successive phases of preceding cycles we shall
expect to find similar reactions in respect to the excess of ex-
ports over imports, to bank policy, to sectional price-levels,
and to the decline in trading advantage. In view, however, of
the internal inflation, and of the abandonment of the gold
exchange standard, in short of all those conditions which tend
