TO CAPITAL REQUIREMENTS 249
place undue emphasis upon the industries producing the world
commodities applicable to the payment of overseas interest.
The debtor, in short, is compelled to devote his energies to
producing those things which the creditor is willing to receive
in payment. Tariff policy, designed to develop manufactures,
and the steady persistent influence of the external debt in forcing
 on the development of primary industries, are thus, to some
extent, complementary ; but this method of securing co-ordination
 may be both unwise and costly. The greater the external
debt, the greater the dependence upon overseas markets, and
the greater the proportion of labour power engaged in the production
 of purely consumption goods. So long as heavy external
indebtedness is a dominant factor in the national economy, so
long will the natural emphasis be placed upon primary as
opposed to secondary production; and so much greater will be
the apparent necessity for increased protection to manufactures.
The failure to consider in sufficient detail the relation of overseas
 debt to overseas trade is the main defect to be indicated in
the report of the special committee on the tariff! The peculiar
significance, for Australia, of overseas trade resides in the fact
of external indebtedness, and the periodical resurgence of debate
upon over-trading arises from the disequilibrium set up in overseas
 trade by heavy imports of capital. The relatively large
international trade for Australia is due not so much to its
‘specialized conditions’ as to the necessity for overseas payments
 which arises from the migration of capital from Britain
to Australia; in other words, it derives from the fact that, over
any period, the gold values of goods and services imported must
be balanced by the gold values of those exported. It requires
rather a serious distortion of the facts of the case, therefore, to
assert that external loans are the effect of the movement of
goods rather than the dynamic cause. The classical theory of
international trade has, in fact, made too little of the operation
of capital loans upon demand schedules, standards of living,
and real wages in the borrowing country. It would hold that
the real income of a country depends upon ite efficiency in
production, and that the gains in external trade are roughly
proportionate to the relative efficiency of the combined factors

The Australian Tariff, An Economic Inquiry by a special Committee. See
sspecially the arguments advanced in Appendix T, and in Part III (5).
710 x k