122 EXCHANGE IN RELATION TO CAPITAL 
World conditions of business affect the stream of savings in a 
remarkable manner; and, in addition, the minds of investors 
are so peculiarly susceptible to political and psychological in- 
fluences as to make the prediction of the volume of capital 
forthcoming a very difficult matter for the market. But even 
more uncertain is the estimate of demand, and this factor has 
perhaps the greater influence in inducing relative shortages of 
capital from time to time. To sum up, the primary consequence 
of uncertainty concerning the volume of capital awaiting invest- 
ment is the constant necessity imposed upon the exchange 
market to adjust itself to considerable exports of capital from 
Britain, which, moreover, are far from constant in volume.l 
The manner in which these exports of capital are transferred 
to Australia constitutes a most controversial phase of our 
subject. The undisputed facts that the greater part of the 
capital borrowed will be expended in Australia in the payment 
of labour engaged upon developmental works, or on the pur- 
chase of material or machinery in Australia or abroad, has raised 
the question as to the exact amount of benefit which ‘the in- 
dustries of a lending country derive from capital loans. J. M. 
Keynes and others have rendered a service to economic dis- 
cussion by calling into question the orthodox views held on this 
matter,2 and by advancing the point of view that Britain and 
British industries would be better served by the investment 
of a greater part of surplus capital in Britain itself. More 
especially, doubt has been cast upon the stimulating effect upon 
the export trade of Britain which these loans are supposed to 
initiate. That such stimulation does take place as between 
Britain and Australia can scarcely be seriously questioned, 
although the benefit is shared by non-lending countries engaged 
in trade with Australia on a large scale, such as the United 
States. Nor can it be seriously questioned that there is a 
progressive stimulation over the long period as a result of con- 
tinued loans. 
! Copland has tested this by a comparison of the London funds and the excess 
of deposits over advances in Australia in the case of the Bank of New South Wales 
for the period 1903-24. ‘It may therefore be assumed that the most important 
influence in Australian banking is the balance of payments and the flow of bank 
funds in London. Gold is used only to sustain movements in banking and credit 
set in motion by this controlling influence.’—0p. cit., p. 83. 
3 Qe editorials and correspondence in Economist, March 1929.