Full text: Borrowing and business in Australia

BETWEEN 1900 AND 1913 
‘The point that is less familiar in connexion with the theory of the subject, or ab 
least is not commonly considered, is the closeness and rapidity with which the vary- 
ing balance of payments has found its expression in the varying balance of trade. 
The actual merchandise movements seem to have been adjusted to the shifting 
balance of payments with surprising exactness and speed. The process which our 
theory contemplates—the initial flow of specie when there is a burst of loans; the 
fall of prices in the lending country, and rise in the borrowing country; the eventual 
increased movement of merchandise out of one and into the other—all this can 
hardly be expected to take place smoothly and quickly. Yet no signs of disturbance 
are to be observed such as the theoretic analysis previses.’—Taussig, I niernational 
Trade, Chapter XX. 
“Those commodities which advance most in price in the world markets should 
become, other things being equal, the most profitable to produce for export, and 
should consequently become a larger instead of a smaller proportion of the total 
exports. But the reverse was true as far as Canadian prices were concerned. It 
was the commodities whose prices rose least whose export increased most. This 
proves . . . that the relative rise in prices of the commodities important in the 
export trade was due predominantly to Canadian conditions, and was not simply 
a reflection of conditions in the world market. The factors incidental to great 
capital borrowings operated to break the normal relationship between the trends 
of prices of export commodities in Canada and in the world markets, and thus 
tended to restrict export trade.’ —VINER, Canada’s Balance of International Indebted- 
ness, Chapter X. 
TaE task of clinching the connexion between the flow of capital 
and prosperity, and of linking stoppage of that flow in Britain 
to depression in Australia still remains. We have already noticed 
that the crisis of 1893 marks a stage of transition, a point where 
the tendency towards an excess of commodity imports gives 
way to a tendency towards an excess of exports. The reasons 
for the change will be quite apparent from an analysis of capital 
movements before and since. Although broken by intermittent 
phases of reversion, the dominance of imports before 1893 arises 
from the fact that Australia was still in the early stages with 
reference to its loan operations. After 1880 capital had been 
borrowed in rapidly increasing amounts, but it was not until 
after 1890 that the interest payablé on the old loans began to 
exceed the amount of new loan raised each year. 
At this stage the Australian loan position bears a striking 
similarity to that of the United States before 1873. In both 
countries, in the periods being compared, the pioneer phase of

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