CHAPTER X 
ANGLO-AUSTRALIAN EXCHANGE IN RELATION 
TO CAPITAL MOVEMENTS AND TRADE 
BETWEEN 1900 AND 1913 
‘The effect of borrowing money is inevitably to increase imports. For example, 
for the 10 years ended 1890 the Australian imports exceeded exports by £74 millions. 
The loan indebtedness increased from £61-327 millions in 1880 to £143-662 millions 
in 1890, an increase of £82-4 millions. The same explanation holds good of the 
phenomena of the past few years. It is the heavy borrowings by Australian states 
that account for the increased importations into Australia beyond the increases 
naturally to be looked for in consequence of increased productiveness and increased 
exports following a run of good seasons.’ —Review by ‘Scrutineer’, Melbourne 
Argus, 8 July 1913. 
“When reserves are dangerously depleted obstacles to advances are raised, there- 
fore borrowing is made unprofitable. At this point there can be no further additions 
to the volume of trade (unless prices decline), and no further rise in prices (unless 
there is a reduction in the volume of trade). —Economic Journal, September 1923. 
‘Equilibrium cannot be fully regained till the demand for capital has been damped 
down by the adverse state of the investment market, not merely to normal but 
below normal; for the exceptional indebtedness of the investment market has to 
be liquidated. ——HawrrEY, Trade and Credit, on the Gold Standard and the Balance 
of Payments. 
It will be necessary at this stage to examine more closely the 
financial relations existing between Australia as a borrower and 
an exporter of primary products, and Great Britain as a lender 
of capital and exporter of manufactures, under the conditions 
of a gold exchange standard which obtained between the two 
countries during this period. Before doing so, but without 
entering into a discussion of the phenomena attendant upon the 
operation of such a standard, it will be well to emphasize the 
immediate function of gold in such a situation. The gold which 
moves from one country to the other merely ‘plays the part of 
settling a clearing balance just like a payment made by one 
clearing bank to another’, to use the illustration of R. G. 
Hawtrey.l It equalizes supply and demand between the two 
countries concerned, not by an adjustment of the relative values 
of Australian and British currency, but by providing a means 
of paying for the immediate difference in indebtedness between 
the two countries.? If these differences are merely transitory, 
! For a comprehensive statement of the general argument which is here given 
particular application to the Anglo-Australian position, see Hawtrey, Trade and 
Credit, Chapter II. 
2 ‘There is no free exchange market in Australia. The banks accept the rates