124 EXCHANGE IN RELATION TO CAPITAL
the price of securities accompanied by an increase in the charges
for issuing and underwriting gives very plain warning to in-
vestors. An extreme example of this method of defence will be
remembered from the last chapter. The periodical congestion
or over-lending which is typical of the investment market is
merely another form of credit inflation which has advanced
to the breaking-point. There ensues a contraction of credit
accompanied by a rise in the bank rate which discourages both
borrower and underwriter. Dear money will persist until the
credit position recovers; and the ‘unwillingness of the invest-
ment market to hold securities’ is the first authoritative indica-
tion that further borrowing is not expedient. The disastrous
attempts made at different times by Australian states to persist
in attempts to float loans despite the frowns of the market will
illustrate the point. ‘If’, as Hawtrey puts the matter, ‘bor-
rowers are very insistent there may be a very heavy depreciation
of securities. In an extreme case there may be a crisis and a
panic, in which the flotations of new issues become temporarily
impossible.’
I+ now remains to establish as definitely as may be the link
between borrowing and banking; and to indicate how fluctua-
tions in the rate of capital injection are followed by corre-
sponding oscillations in prosperity as marked by available bank
credit. The connexion to be made is, of course, through the
movement of gold ; and to test the connexion the accompanying
graph was constructed. In this graph the imports of capital are
shown year by year in relation to the retention of gold in
Australia, i.e. the excess of production plus import over export
of the metal. It is obvious that capital, whether in the form of
goods or gold, does not move immediately after the market has
completed the flotation of a loan. Months may elapse before
definite government orders for capital goods, or rather the
payment for these, begins to affect the London balances which
now represent the loan; or before a government commences to
draw upon its London credits in order to defray labour and
other expenses upon constructional work in Australia. Many
instances could be quoted, indeed, of loans which appear among
the flotation figures for one year being carried over in London
intact to the following year. As a rough corrective, the plottings
representing goldretentioninthe graph weremoved back one year,