200 THE BALANCE OF INDEBTEDNESS, 1918-28 
In connexion with the effect of borrowing upon imports some 
further features may be noticed. Australian experience would 
indicate the following sequence as fairly representing the facts 
of the situation. The issue of a loan is invariably for some speci- 
fic purpose; and most usually is for some developmental work 
which requires the expenditure of the greater part of the loan 
in paying the labour engaged upon the construction. Undoubt- 
edly some portion of the loan leaves Britain in the form of 
capital goods ; but analysis tends to show how surprisingly small 
is the proportion of recent borrowings which is so expended 
as to stimulate directly the export of capital goods from 
Britain. 
For an explanation of the contradiction of accepted theory 
involved in this statement we must turn to the conditions under 
which the loan is translated into purchasing power in Australia, 
i.e. in the payment of wages. The commencement of a con- 
structional work and the mobilization of the labour necessary 
for its carrying out, either in rural areas or urban factories, 
involves the establishment of all sorts of retail supply services 
through the medium of which the greater part of the wage fund 
is expended in the consumption goods required by the labourers 
or technicians. The import of all the foreign-trade goods which 
the community ordinarily requires is stimulated; and the 
anticipated demand for these is measured by a multitude of 
petty traders of various kinds. The cumulative effect of a 
number of small and localized booms in trade excited by and 
dependent upon the expenditure of loan money is concentrated 
at a relatively few importing points. Thus the business of 
importing houses in the capital ports responds in a highly sensi- 
tive fashion to the stimulation of trade ‘up-country’ as the 
expenditure of the loan money proceeds. Owing to the distance 
over which foreign-trade commodities have to be transported, 
and to the time-lag involved, the ordering by importers of 
these goods is necessarily largely speculative, and always tends 
to be in excess of actual requirements. This is, in itself, one 
of the reasons for the ‘over-spending’ or ‘over-trading’ which 
normally characterizes booms based on loan expenditure. 
Correspondingly the depression in trade in the capital ports as 
the expenditure of loan funds ceases in the hinterland is again 
a normal reaction that tends to be very emphatic.