TO CAPITAL REQUIREMENTS 249 
place undue emphasis upon the industries producing the world 
commodities applicable to the payment of overseas interest. 
The debtor, in short, is compelled to devote his energies to 
producing those things which the creditor is willing to receive 
in payment. Tariff policy, designed to develop manufactures, 
and the steady persistent influence of the external debt in for- 
cing on the development of primary industries, are thus, to some 
extent, complementary ; but this method of securing co-ordina- 
tion may be both unwise and costly. The greater the external 
debt, the greater the dependence upon overseas markets, and 
the greater the proportion of labour power engaged in the pro- 
duction of purely consumption goods. So long as heavy external 
indebtedness is a dominant factor in the national economy, so 
long will the natural emphasis be placed upon primary as 
opposed to secondary production; and so much greater will be 
the apparent necessity for increased protection to manufactures. 
The failure to consider in sufficient detail the relation of over- 
seas debt to overseas trade is the main defect to be indicated in 
the report of the special committee on the tariff! The peculiar 
significance, for Australia, of overseas trade resides in the fact 
of external indebtedness, and the periodical resurgence of debate 
upon over-trading arises from the disequilibrium set up in over- 
seas trade by heavy imports of capital. The relatively large 
international trade for Australia is due not so much to its 
‘specialized conditions’ as to the necessity for overseas pay- 
ments which arises from the migration of capital from Britain 
to Australia; in other words, it derives from the fact that, over 
any period, the gold values of goods and services imported must 
be balanced by the gold values of those exported. It requires 
rather a serious distortion of the facts of the case, therefore, to 
assert that external loans are the effect of the movement of 
goods rather than the dynamic cause. The classical theory of 
international trade has, in fact, made too little of the operation 
of capital loans upon demand schedules, standards of living, 
and real wages in the borrowing country. It would hold that 
the real income of a country depends upon ite efficiency in 
production, and that the gains in external trade are roughly 
proportionate to the relative efficiency of the combined factors 
The Australian Tariff, An Economic Inquiry by a special Committee. See 
sspecially the arguments advanced in Appendix T, and in Part III (5). 
710 x k