THE BALANCE OF INDEBTEDNESS, 1918-28 195 
and, in this sense, the commodity balance of trade may be 
regarded as the ‘governor’ regulating the whole balance of 
indebtedness. 
Under normal conditions, however, variations in commodity 
imports function more sensitively in this matter of maintaining 
equilibrium than do variations in exports. Especially is the 
variation in the flow of imports a critical function of the 
borrowing cycle. By this means, and by this means almost 
exclusively, is it possible to adjust the international balance of 
indebtedness to the variations in capital borrowing. The argu- 
ment has special reference to Australia which belongs to that 
group of new and undeveloped countries needing the injection 
of great amounts of capital for the rapid and effective exploita- 
tion of their resources. For Australia, as for all such countries, 
comparative advantage in foreign trade is ‘confined to the 
export of the primary products of her natural resources, limited 
in their range but representing a large part of her total com- 
modity production’. Marked variations in the export of these 
few commodities is a natural consequence of seasonal variations 
in their production. Continuous production is, however, en- 
forced by the necessity for providing employment, on the one 
hand, and for meeting the charges on capital invested in the 
industries, on the other. Changes in the price-levels for these 
commodities in world markets will be followed only very slowly 
by changes in production and export, and then only if the 
price changes are maintained over long periods. 
Imports, however, are far more flexible. They display much 
greater variations, both in volume and ‘make-up’, than do 
exports ; and are, moreover, less intimately associated with the 
volume of domestic production. Thus it happens, as Viner 
remarks for Canada, that ‘marked and rapid fluctuations in 
imports cause less disturbance to industry, and necessitate less 
internal readjustment, than do correspondingly marked varia- 
tions in exports’. The natural consequence of the relations 
existing between domestic production and overseas trade is that 
the sharp adjustments in the commodity balance of trade 
necessitated by capital borrowings are effected to a far greater 
degree by variations in the rate of imports than by variations 
in the volume of exports. 
1 See Viner, op. cit, Chapter XI.