TO CAPITAL REQUIREMENTS 245 
in short, be reversed ; and no possible manipulation of domestic 
credit or of foreign exchanges could stave off some measure of 
the reaction inevitable during such a period. 
Irrespective of whether there is deliberate intention on the 
part of the authorities, or whether it is forced on by the pressure 
of the external debt, it is certain that the final position, apart 
from the increase in the total volume of production and the 
change in proportion of foreign-trade to home-trade commodi- 
bies, will be achieved by a fall in nominal wages relative to those 
of the creditor countries. The lowering of nominal wages, how- 
ever, would be accompanied, step by step, by a fall in the prices 
for home-trade commodities; and the fall in real wages would, 
if there were an acceptance by the community of the necessity 
of the change, not necessarily be very great. The chief benefit 
from the standpoint of the balance of trade would be the lower- 
ing of the cost of production, and a corresponding betterment of 
the terms upon which Australia competes in foreign markets. 
That is to say that the terms of trade would turn to the advan- 
tage of Australia; and as the change gathered momentum the 
advantage would necessarily increase. 
It is to be thought that in this betterment of the comparative 
advantage with which Australia competes in the industries for 
which she is naturally qualified lies the silver lining to the cloud 
which must accompany the transition. Compulsory limitation 
of loans from the British end must automatically force on the 
economies theoretically foreshadowed above. The extrava- 
gances associated with unrestricted borrowing will, it must be 
supposed, be corrected by the negation of the very conditions 
which induced them. The transition period leading up to the 
time when Australia will be capable of providing her own capital 
requirements with the assistance of private importations can 
scarcely be pleasant; but it should result in a stability which 
sould be achieved in no other way. 
The assumption has been made that Great Britain, by reason 
of her own vastly increased international liabilities, will be no 
longer able to sustain her pre-war rate of capital investment 
overseas; and this assumption needs substantiation. The most 
efficient measure of Britain's lending capacity is to be found in 
the annual statement of the Board of Trade relative to the 
national income and the surplus for investment. The difference