222 THE ECONOMIC EFFECTS OF THE 
situation of a bill rate 1 per cent. higher in London than in New 
York.’ 1 
Both of these measures had important reactions upon Australian 
finance which must now be examined. 
The embargo on foreign issues was in effect a form of 
censorship exercised by the Bank of England ever since the 
difficult times of 1924. Tt was continued until the end of 1925 
ostensibly with the object of preventing a strain on the ex- 
changes at a time when world prices favoured the export of 
gold from Britain. It was not remarkably successful, since it 
was impossible to hold back all types of foreign issues, and, 
particularly, to prevent private purchase of foreign securities 
which was the alternate form assumed by the ‘flight of capital’. 
While the censorship was both unpopular and ineffective, it 
had very serious effects upon the Australian financial situa- 
tion? For the rationing of issues led to the rigorous 
scrutiny of all overseas issues; and, because of the privileged 
position held by Australian Government bonds as trust securi- 
ties in the British market, a great deal of criticism was directed 
against Australian loan policies. 
There can be little doubt that the attitude adopted in Britain 
evoked the defensive response which took shape as the Austra- 
tian Loan Council.® The immediate result of the embargo was 
bo cut down loans of all sorts to Australia from the £42 millions 
which were transferred in 1924 to less than £3 millions in the 
following year. Over the three years 1925-6-7, loans of all 
classes averaged a bare £25 millions per annum. This oscilla- 
lion from fat to lean years in the matter of capital loans led 
! See J. M. Keynes, The Economic Consequences of Mr, Churchill, Pp. 17 ef seq. 
* See on this aspect of the embargo, article ‘Australian Credit as viewed from 
London’, by Sir Hal Colebatch, Economic Record, Nov. 1927. 
* By an agreement between the Commonwealth and the States which was 
arrived at in 1928 and validated by statute in the following year, (i) State debts are 
taken over by the Commonwealth, (ii) a Loan Council is created, (iii) Annual con- 
tributions are to be made from Commonwealth revenue towards the payment of 
‘nterest on the State debts, and (iv) Sinking funds are provided. ‘The new law 
provides for a Loan Council, to consist of one member of the Commonwealth and 
one for each State. Each Government (Commonwealth or State) must submit to 
the Loan Council a programme setting forth the amount it desires to raise by loans 
for each financial year; and if the Council decides that the total is not available at 
reasonable rates and conditions the Council shall fix the amount to be borrowed 
and shall allocate the amount between the Commonwealth and the States.’ —J. R. 
Collins, The Public Debts of Australia, p. 20.