124 EXCHANGE IN RELATION TO CAPITAL 
the price of securities accompanied by an increase in the charges 
for issuing and underwriting gives very plain warning to in- 
vestors. An extreme example of this method of defence will be 
remembered from the last chapter. The periodical congestion 
or over-lending which is typical of the investment market is 
merely another form of credit inflation which has advanced 
to the breaking-point. There ensues a contraction of credit 
accompanied by a rise in the bank rate which discourages both 
borrower and underwriter. Dear money will persist until the 
credit position recovers; and the ‘unwillingness of the invest- 
ment market to hold securities’ is the first authoritative indica- 
tion that further borrowing is not expedient. The disastrous 
attempts made at different times by Australian states to persist 
in attempts to float loans despite the frowns of the market will 
illustrate the point. ‘If’, as Hawtrey puts the matter, ‘bor- 
rowers are very insistent there may be a very heavy depreciation 
of securities. In an extreme case there may be a crisis and a 
panic, in which the flotations of new issues become temporarily 
impossible.’ 
I+ now remains to establish as definitely as may be the link 
between borrowing and banking; and to indicate how fluctua- 
tions in the rate of capital injection are followed by corre- 
sponding oscillations in prosperity as marked by available bank 
credit. The connexion to be made is, of course, through the 
movement of gold ; and to test the connexion the accompanying 
graph was constructed. In this graph the imports of capital are 
shown year by year in relation to the retention of gold in 
Australia, i.e. the excess of production plus import over export 
of the metal. It is obvious that capital, whether in the form of 
goods or gold, does not move immediately after the market has 
completed the flotation of a loan. Months may elapse before 
definite government orders for capital goods, or rather the 
payment for these, begins to affect the London balances which 
now represent the loan; or before a government commences to 
draw upon its London credits in order to defray labour and 
other expenses upon constructional work in Australia. Many 
instances could be quoted, indeed, of loans which appear among 
the flotation figures for one year being carried over in London 
intact to the following year. As a rough corrective, the plottings 
representing goldretentioninthe graph weremoved back one year,