CHAPTER XII
THE AUSTRALIAN BALANCE OF INTERNATIONAL
INDEBTEDNESS FROM 1900 TO 1913
‘In New and Old countries alike, consumption and therefore imports are usually
large in an ascending phase of general commercial credit; and at the same time
prices are high, and therefore imports appear larger than they are. But a lending
country, like Britain, generally exports capital largely when credit is good ; and her
working and other classes are spending freely ; while a borrowing country is likely
to swell her imports by goods obtained on credit, just when her imports would be
largest and at the highest prices, even if she were not borrowing.’ —ALFRED
MamrsuarL, Money, Credit, and Commerce.
*We draw so extensively upon other countries for many commodities, while at the
same time the prices of our great staple products are so affected by the foreign
demand for them as to render the Australian price level more a product of two sets
of factors, domestic and foreign, than is the case in most other countries. It is thus
necessary to consider the whole problem relative to Australian conditions before
any general conclusion may be stated concerning the relation of currency and
prices.—Prof. D. B. CopLanp, ‘Currency Inflation and Price Movements in
Australia,’ Economic Journal, Dec. 1920.
ALTHOUGH in these days the use of certain terms borrowed from
the writings of theorists upon international trade has become
common in press and forum, some confusion in thought and
language still persists. This ambiguity in economic discussion
arises not so much from difficulties in the conception of inter-
national indebtedness, or from the want of thought upon the
subject, as from failure to agree upon the exact connotation of
the terms employed. There is little doubt that the attempt to
express the two aspects of the international account in terms
of ‘exports’ and ‘imports’ is primarily responsible for this con-
fusion, since many items making up the total of international
indebtedness can be thus described only by a somewhat violent
distortion of language. It would therefore appear to be ex-
pedient to classify the items in indebtedness rather as ‘debits’
and ‘credits’ ; and thus to emphasize the effect of the transfer of
goods and services, rather than the direction of such transfers.
Since strict consistency in the use of terms is indispensable to
scientific discussion it is necessary to state here the exact sense
in which they are employed. Transactions which create mone-
tary obligations by Australians to individuals or firms abroad
are debits, while transactions which create similar obligations
to Australians are credits. The Australian ‘balance of indebted-
ness’ is therefore taken to mean the equilibrium established