176 BOOM OF 1919 AND SUBSEQUENT DEPRESSION 
abroad. Steeply rising prices had been a feature of the whole of 
1919 and most of the following year! After the break there 
followed an equally rapid decline of 42 per cent. in less than 
eighteen months. This sudden collapse of prices was a feature of 
the recession in all countries. The severe check due to the onset of 
the ‘writing down’ period in Britain brought about an inevitable 
double reaction in Australia, first through the fall in the prices 
for Australian products, and, secondly, because of the shortage 
of overseas loan supplies. Bearing in mind the relation between 
interest and new loans sketched in the last chapter, we must now 
mark the coincidence of several factors which tended to in- 
tensify the subsequent credit shortage. ‘During this process 
of deflation difficulties of another kind arose. For each of the 
years 1917-20 there had been an excess of exports over imports, 
and for the year ending 30th June, 1921, this excess reached 
the record figure of over £50,000,000. But for the following 
year there was a decrease of exports of over £1 6,000,000, 
and a very heavy increase of imports of £65,000,000. This 
brought about an excess of imports of over £30,000,000, and 
caused great difficulties in financing imports at a time when 
the banks were deliberately restricting their advances for home 
trade.’ 
The immediate debit balance, as an index of the very serious 
situation which developed, was estimated by the Commonwealth 
Statistician to amount to £27,000,000 in respect of excess of 
imports and £22,000,000 by way of interest liability, ‘con- 
sequently the value of the exports for the year was about 
£50,000,000 short of the amount required to pay for the imports 
and to meet the standing obligations on account of interest, &c.’ 2 
The strain imposed upon the exchange facilities as the outcome 
of such a situation can easily be imagined. 
Contraction of credit we have now learnt to regard as the 
normal reaction at the end of the borrowing cycle following the 
expansion which characterizes its earlier phases. The crisis of 1921 
was no exception: restricted credit and the recall of advances 
omee more marked the cessation of capital supplies. The inflation 
! “The rise in this period was nearly 40 per cent., and indicates a period of 
feverish trade activity.’ —Copland, ibid., p. 564. 
¢ Commonwealth Year Book, No. 14, p. 497. ‘Exchange on London was very 
difficult and demand drafts rose to £1 17s. 6d. per cent. No doubt business was done 
at a much higher figure. but this was much the highest official quotation since 1900.’