218 THE ECONOMIC EFFECTS OF THE 
The estimation of the deflation consequent upon the return 
bo gold, and of the relative disadvantage reaped by Australia, 
by virtue of the diminished value of exports and the increased 
total of the payments on account of imports, interest, and 
services, represents a difficult exercise in the measurement of 
the effects of currency appreciation. Over-lain as these effects 
are by price changes due to tariff adjustments and to wage 
fixation, the isolation of the purely monetary phenomena 
cannot be achieved with any great degree of satisfaction. 
Sufficient can be accomplished, however, to indicate the broad 
effects of the change upon Australian business, and to put the 
penalties of the previous inflation in a fairly clear light. 
In his reply to the attack made by Mr. J. M. Keynes upon the 
decision of the Baldwin Government to restore the gold standard 
Professor Gregory has touched upon the very factors which 
have told most effectively in the Australian situation. The 
stabilization which was effected was on the basis of the higher, 
i.e. the external, value of both the British and Australian 
currencies, and in this way an adjustment crisis was induced 
which varied in the two cases by the extent of the divergence 
between the internal and external values of the pound, and 
with the elasticity of the factors of production, i.e. with the 
extent to which capital and labour in particular could be used 
more or less effectively than before the change. In particular, 
if there had been over-valuation of the currency prices for ex- 
ports would represent a smaller return in the local currency ; 
and this would form one of the chief tests to be applied to the 
situation. 
"Meanwhile all expenses in terms of the local currency remain what 
they were. How will the adjustment be made ? If wages in the 
exporting industries remain fixed, if there is no possibility that 
depression in these trades will lower supply prices in other industries, 
if, in spite of the fact that wages and prices in the other industries 
are not directly affected, labour cannot be transferred and by com. 
petition reduce wage rates, and by increasing supply, reduce supply 
prices, if there is no reduction in the cost of living, or, if there is a 
reduction, it is not allowed to affect wage rates ; if, in other words, we 
assume a rigid, water-tight organization of labour, a quasi-monopolistic 
organization of industry, there will be no speedy adjustment. Under 
such conditions real wages in the ‘sheltered’ trades will rise, un-