CHAPTER VIII
AUSTRALIA'S RELATIVE DISADVANTAGE IN
OVERSEAS TRADE AFTER 1890
In popular talk on these matters it is assumed that a creditor country ipso facto
has an excess of merchandise imports and a debtor country an excess of exports.
The creditor country—so people imply in their everyday tallk—has payments to
receive, the debtor country has payments to make: the former is expected to show
2 net credit in its accounts, the latter a net charge or net outgo. Not at all. The
state of the merchandise account, the balance of the money values of imports and
sxports, may run either way, for either debtor or creditor country. It depends on
the stage which credit operations have reached.’ —Prof. F. W. Tavussia, Iniernational
 Trade.
Thus it is usual to speak of countries such as Brazil, Argentina, and (before the
war) the United States as “‘debtor countries’ because “they had an adverse balance
»f indebtedness”. All this was intended to mean was that such countries have
sorrowed large sums on capital account in Europe. . . . How was this “adverse
indebtedness” liquidated ? All that happened was that, in addition to exporting
enough to pay for current purchases of goods, these countries exported wheat and
maize, meat and rubber, in sufficient quantities to meet their instalments of debt
interest as these fell due. There was no “adverse balance’ at all in the sense that,
taking all the items into account, during each successive period, there was not available
 sufficient means of payment.’—Prof, T. E. GREGORY. Foreign Exchange Before,
During, and After the War.

TuE last three chapters have been concerned with the history,
description, and statistics of the decade previous to 1893. The
entire episode, comprising the collapse and the events which led
up to it, has been regarded as a means of verifying the theory
of international trade by observing the effects of an experiment
in the course of which great quantities of capital were injected
into a community small in numbers and isolated in an unusual
degree. We have now to trace the causal connexion between
capital imports and the commercial crisis, and to investigate
the influence of protracted borrowing upon national prosperity.
The approach to the investigation is indicated by the foregoing
argument; and consists, in the main, of an analysis of the
Australian balance of trade. Since, however, so much of the
data necessary for adequate analysis has either not been recorded
or demands so much assistance for its dissection, we are compelled
 to adopt the methods devised and applied with conspicuous
 success by other investigators in similar circumstances.
But before entering upon this task a few preliminary observasions
 having reference to the terms to be used in the discussion