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The Pamphlet Collection of Sir Robert Stout: Volume 70

The Importation of Capital

The Importation of Capital.

The increase of capital or wealth in Australia is due to internal growth and to importations of capital from the outside world. In the course of these notes it will become necessary to point out the marked distinction that exists between the wealth of Australia and the wealth in Australia. This important distinction is too generally lost sight of. The subject of page 4 the importation of capital is a deeply interesting one. Perhaps it is the one most vital to the prosperity of Australia, and the conditions surrounding such importation are worthy of the closest scrutiny—of far more scrutiny than they have yet received. The prices of all commodities throughout the world are for ever tending to equilibrium. The value of wheat in London and the value in Australia seldom vary more than the difference representing the expenditure needful to carry the wheat to London from Australia. Naturally there is also a tendency towards equilibrium in the value—the interest—of capital throughout the world, but there is no such approach as we fina in the matter of commodities. Of course there are persons whose only idea of capital is summed up in "gold." Such persons would think that the owner of a million pounds receiving £25,000 (2½ per cent.) for the use of that money, in England, should ship out the amount of wealth in gold, and secure at least £50,000 (5 per cent.) in Australia. But the idea is not so simple as it seems. In the first place, the question of proportionate risk at once arises; in the second place, it would be quite certain that Australia would not want the gold, as she produces far more of that metal than she requires. If the capital were to be sent out, it would have to be sent out in such commodities as the people of Australia could use to advantage. It will be seen, therefore, that there is a distinct limit to the power of any country to absorb new capital. Of course a country may borrow enormous sums of money which may be wasted, and, in a given sense, that money may only too truly be said to have been absorbed. There is no limit to the extent of absorption for tie .purposes of waste, but there is a distinct limit to such absorption if the capital is to remain in existence and benefit the community in a lasting manner. If a colonising expedition of a thousand persons were to settle in an entirely new country, bringing with them wealth to the extent of a million pounds, they would find it utterly impossible to put the wealth to advantageous uses, and in 'ten years' time it would be certain that that community would be poorer. If, on the other hand, that colonising expedition possessed hardly anything but the implements of husbandry, the tools of the artisan, and the simple requisites of a new community, it may reasonably be expected that a lapse of ten years would show a pleasing growth in wealth. The line dividing what is an advantageous use of new capital from the mere expenditure or waste of new capital is often difficult to page 5 ascertain; but the resulta of the use of new capital on the wrong side of the line are often of the most calamitous character—that which at first was a benefit becomes a burden. The borrowing and expenditure of one million may be wholly and permanently beneficial, whilst the borrowing and expenditure of two millions may be temporarily beneficial but ultimately permanently injurious. We do not think that the intimate connection that has always, or almost always, existed between times of exuberant prosperity in these colonies and large importations of capital has ever been carefully studied. Certainly the public do not fully recognise that it is an absolute impossibility to borrow in excess without bringing about a time of suffering more or less severe Perhaps we are not sufficiently exact in speaking only of "borrowing in excess," since a large proportion of the new capital that reaches Australia is not borrowed, but is sent out by the owners and invested for their account It might be said that there have been two streams by which capital has been brought to Australia—(1) the borrowing stream, and (2) the speculative stream. The speculative stream often flows in an enormous volume when the borrowing stream rune nearly dry, and vice versa. It is always for our good when the British investor sends money which can be, and is, used in profitable development. But when in blind folly, as recently in the case of Victoria, as we shall see, he rushes millions into mad schemes, then the suffering which he is preparing for himself must assail us also.