THE RETURN TO GOLD IN 1925 215 
seriously affects the one must also affect the other in some 
measure. Secondly, and perhaps more importantly from the 
aspect of the business cycle, is the relation in which Australia 
stands as debtor to Britain. The dependence upon Britain for 
capital supplies is of far greater significance, especially in the 
post-war period, than the relation between the English and the 
Australian pound. It is scarcely to be supposed, therefore, that 
the Commonwealth has come scatheless through the most 
momentous change in her recent financial history. The dis- 
abilities for which that change was partly responsible in British 
industry have, on the contrary, been shared in full measure by 
Australia; and an examination of its concomitant circum- 
stances will do much to explain both the facility with which the 
transition was made and the manner in which the effects of the 
return to gold have been masked by other developments. 
It is not proposed to translate the controversy concerning 
the expediency of the return to gold into the Australian field. 
The step having been taken, our interest lies rather in its 
economic results than in hypothetical alternatives. Nor will 
our purpose be served by entering upon an inquiry as to 
whether the period of transition commenced by that momentous 
decision is yet over, or whether the difficulties of the consequent 
monetary adjustments are safely surmounted. But, in so far 
as the return to gold affected both the value of the Australian 
pound in relation to other currencies, and the British surplus 
of capital available for investment overseas, it has had an 
immediate reaction upon Australian business that cannot 
lightly be dismissed. Nor can this matter be viewed in its proper 
perspective without some description, however brief, of the 
world situation at the moment when the Imperial Government 
decided upon the restoration of the gold standard, or apart from 
some theoretical discussion of the issues involved. 
Alarmed by the steady inflation accompanying the post-war 
boom, and fortified by the Cunliffe Report in 1918, the Bank of 
England raised the bank-rate to 7 per cent. At about the same 
time and by similar measures, the Federal Reserve authorities 
of the United States sharply constricted credit in the United 
States, and by 1919 had achieved a notable appreciation in 
the value of the dollar. The British wholesale price index fell 
from 306 to 158 by January 1922; while, over practically the