Full text: Borrowing and business in Australia

PRIOR TO 1893 
‘A period of prosperity is ushered in by a rise in prices caused, for example, by an 
increased supply of gold or by heavy government purchases. . . . The important factor 
in determining the character of a period isthe discrepancy between current capitaliza~ 
tion and anticipated earning capacity.’—VEBLEN, Theory of Business Enterprise. 
‘There never yet has been an occasion when a marked increase of prosperity, clearly 
traceable to the influence of British money, has not been treated as a national ex- 
pansion, the consequences often being of a most deplorable character.’ —Epwarp 
PuLsForD, Notes on Capital and Finance in Australia, 1892. 
‘In order that capital borrowings should enter in the form of goods instead of in 
the form of money there was necessary a change in the quantitative relationship 
of commodity imports to exports such that there would be an excess of imports 
over exports to absorb the surplus foreign credits created by the borrowings 
abroad.’ —VINER, Canada’s Balance of International Indebtedness. 
THE descriptive treatment of the events leading up to the crisis 
of 1893 which was given in the last chapter has, admittedly, 
little reference to the verification of the theory of international 
trade by Australian instances. It was, however, necessary to com- 
plete the picture of the decade; and to indicate the extremely 
serious nature of that dislocation of the economic life of the 
community. The next stage of analysis concerns the statistical 
data connected with the import of capital into Australia; the 
extent of British investment in the colonies, especially through 
private channels; and the relation between the increase in 
indebtedness, the growth of population and resources, and the 
general level of prosperity. 
There is a distinct limit to the rate at which any community 
can assimilate capital. The mere absorption of capital does not 
mean assimilation in the economic sense of the effective employ- 
ment of that capital. It is merely truism to reiterate that capital 
arrives mainly in the form of goods; and that, in the extreme 
instance, these goods may be consumed without any addition 
to the reproductive capacity of the community. Or, to take a 
less extreme case, the commodities imported may consist 
entirely of capital goods, so rapidly introduced or so wrongly 
' Mulhall, Dictionary of Statistics, gives the following progressive figures for 
foreign issues in London: 1862, £144 m.; 1872, £600 m.; 1882, £875 m.; 1888, 
£1,698 m.

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