TO CAPITAL REQUIREMENTS 243
necessity for making increasing external payments ; and the only
response possible would involve an increase in exports, a de-
crease in imports, or both. To the extent that Australia finds
it economically impracticable to secure additional supplies of
capital on the same scale as in the last half-century, she would
be compelled to widen the margin between production and con-
sumption. All the phenomena characteristic of the short-period
credit restriction occurring at the end of the borrowing cycle
would become the normal condition of a less marked but more
protracted period of depression.
Within certain limits an increase in exports and a decrease
in imports might be easily achieved ; and the impact on living
standards, as Dyason indicates, might be so slight as to be
almost negligible. Beyond these limits, however, a depression
of the standard of living must be anticipated ; and, in the pro-
cess, a certain amount of economic friction would characterize
the change. To cover the increased payments abroad—in-
creased, in effect, because there would be no incoming capital
as an ofiset—both State and Federal governments would be
under the necessity of increasing taxation; and the effect of this
upon the community as a whole would be to reduce consumption
by a like amount. The decline in demand which would follow
diminished purchasing power would be felt in the markets for
both home- and foreign-trade commodities. The effect on the
market for foreign-trade goods would be to diminish imports:
that on domestic markets would be to release an additional
portion of production for export. To that extent the regulation
of the international equilibrium would be automatic and
sufficient.
It will be seen, however, that the effect upon the balance of
trade is merely an indirect one. A situation is conceivable,
indeed has already developed, when this indirect stimulation of
exports would not be adequate to bridge the discrepancy
between the two sides of the international account. Means would
then have to be devised, partly by means of still higher taxation,
partly by industrial policy, to enlarge the disposable income,
i.e. to divert such a proportion of the productive power of the
community from the production of home-trade commodities to
that of foreign-trade commodities as would cancel the difference
in the balance of payments. Such a diversion could only be