"RETURN TO GOLD IN 1925 223
inevitably to abrupt restriction of bank credit in Australia and
to the recession of business which was so marked a feature of
the triennium following the return to gold.
Arising from this compulsory deflation were other effects of
no less consequence. The year 1924 saw the almost complete
re-establishment of world trading connexions, and it was a
matter for comment in the bulletins of economic services that
the uniformity of the international trade cycle once more
definitely appeared.
‘But whereas in the previous year the growing international soli-
darity was manifested in the expansionist tendency in the various
countries associated internationally, this improvement at the turn
of the year almost everywhere came to an end, and was displaced
by a stagnation which became more marked month by month. This
change in the world situation was marked by a general fall in the
world level of prices, a decline in trade turnover and in the demand
for credit, a growing unemployment in western and eastern Europe,
and in a portion of the overseas areas.’
Under the urge of world conditions and local deflation, prices in
Australia reacted sharply, and a movement commenced which
took the wholesale price index from 1.878 in December 1924
to 1,710 by March 1927.
The maintenance of higher interest rates by the Bank of
England relative to the New York rate was the second effect of
importance. Professor Gregory has estimated that from July
1924 the London discount rate was in excess of that for New
York by from 0-7 to 1-8 per cent., and that for the whole of 1925
it never fell below the American rate. A period of relatively
dearer money was thus ushered in for Australia, which persisted
until, by 1928, the depression in business and the anxiety
among investors to play for safety by investing in Government
securities in preference to industrial stocks achieved the
paradox of a cheaper rate for money in Melbourne than in
T.ondon.
t First survey by German Imperial Statistical Office, the Institut fiir
Konjunkturschung, on the World Economic Position at the end of 1925.