AUSTRALIA DURING THE WAR 165 
existing between the rise in price-levels and the volume of loans 
has, however, escaped examination; and it would seem to be 
necessary to attempt to evaluate the effect of loan operations 
upon price changes for the war and post-war years. It is also, 
for our purpose, very necessary to sketch the financial system 
which was developed as a response to war conditions, parti- 
cularly in so far as these bear upon the circumstances governing 
public loan policies. 
A prime factor in the mew situation after 1914 was the 
development in the banking system which had been commenced 
in 1910. In that year two important Acts had been passed by 
the parliament of the Commonwealth, viz. the Australian 
Notes Act and the Bank Notes Tax Actt The joint effect of 
these two measures was to concentrate the issue of paper money 
in the hands of the Commonwealth Government. Under the 
original Notes Act a system was inaugurated by which the 
Commonwealth was empowered to issue notes subject to certain 
safeguards. Up to the amount of £7 millions a gold reserve of 
not less than 25 per cent. was compulsory, while all issues above 
that amount had to be secured on a pound for pound basis. 
Whether some prevision of the monetary disturbances incidental 
to a world war inspired the change or not, in 1911, and in the 
face of the very vigorous opposition of the private banks, the 
provisions of the Act were amended ; and the Treasurer was 
afterwards merely required to hold ‘in gold coin a reserve of not 
less than one-fourth of the amount of Australian notes issued’. 
The new power of issue authorized by the amendment was not 
called into play until September 1914; but after that date, as 
will be shown in a later chapter, it was freely exercised. 
Another momentous change in the light of after events was 
the establishment in 1911 of the Commonwealth Bank.> The 
newly-constituted bank was performing all the normal functions 
of issue at the outbreak of the war; and it was afterwards of the 
utmost service in giving effect to war-time financial measures, 
especially in floating and administering the successive war- 
loans, and in putting into circulation the greatly increased note- 
issue authorized by the Federal Government. ‘With a State 
* See Commonwealth Parliamentary Debates, vol. Iv. 
2 On the formation and control of the Commonwealth Bank see Copland, Foreign 
Banking Systems, p. 85: and articles in the Hconomic Journal, Dec. 1920 and