120 EXCHANGE IN RELATION TO CAPITAL 
trade goods such as farm implements. The money spent on 
investments will come mainly into the Australian investment 
market ; and, as a consequence, Australian capital borrowings 
abroad will tend to be diminished to the extent that Govern- 
ment securities are taken up. Thus, as the result of good seasons, 
Australia may be expected to increase very largely her demand 
for foreign-trade products; and, in this way, to counteract the 
disturbance in exchange by intensifying the demand made on 
the London balances of Australian banks. 
Again, increased spending power in Australia will, by affect- 
ing both the demand for home-trade products and the home 
investment market, tend to raise prices in Australia in relation 
to world-prices, and thus to stimulate imports. Increased 
incomes will accrue both to producers of home-trade products 
and to the merchants handling these, and they in turn will 
expend their incomes partly on domestic investment and partly 
on foreign-trade goods. The excess of exports will thus tend 
to be counterbalanced, or even more than counterbalanced, by 
the increase in imports.! The part played by gold during these 
developments is relatively simple. Gold in the hands of the 
bankers tends to increase as a basis for the temporary inflation 
of credit made necessary by the buoyant conditions. The effect 
on Australia, as a normal gold-producer is, of course, merely 
to retard the export of gold while the currency is expanding. 
The condition peculiar to Australia and many other countries 
of predominantly primary products is the marked seasonal 
character of the export trade. But the problem is not one of 
great difficulty because of the possibility of predicting accurately 
the course of trade. The banks are prepared to ‘hold assets in 
one country against liabilities in another’ because of the 
certainty of an automatic adjustment of the balance as the 
wool-clip and the wheat and fruit crops are marketed. The risk 
inherent in the exchange operations, slight though it may be 
between Australia and Britain, in financing seasonal exports, 
is, in accordance with a well-recognized principle, thrown upon 
the Australian banks. In effect this is merely a precautionary 
{ In the contrary case where there is a shortage of exports the movements are 
parallel but opposite. ‘The exporting interests must curtail their expenditure. 
External investment is diminished, external borrowing is increased, purchases of 
foreign-trade products fall off . . . There must be a contraction of credit; and, if 
the contraction is not sufficient, there will be an export of gold.’ —Hawtrey, ibid.