ordinary market so as to bring down the price for the whole supply, it may cause the whole supply to be sold below cost price.

The difficulty of stopping a recognised tendency to over-production in manufacture is aggravated by the fact that a reduction of output commonly implies a more than proportionate waste of productive power, a large part of the expenses of production remaining the same for a smaller as for a larger output. The net economy of large-scale production is constantly pushing producers to maintain a maximum output in the teeth of falling prices which indicate overstocked markets.

Indeed, this superior economy of a large output is the special source of that "dumping" which figures in international trade. If all the manufacturers in a trade acted in concert it might be more profitable for them to agree in a restriction of output, for though they would thereby produce more expensively, the margin of profit on the smaller output sold dear might be so much larger than that upon a larger output sold cheap, as to yield a net gain on their investment of capital and business energy. But where the competing manufacturers do not act in concert, it will not be profitable for any one of them to restrict his output, for he will thereby be holding up the price for the greater benefit of a competitor who does not restrict his output. So in all trades where the maximum economy of large-scale production has not been

reached, there is a constant tendency among competitors to increase the output irrespective of the effects on the market. Hence a condition of trade is always liable to arise when ordinary markets are glutted, and when it may be advantageous to avoid restricting output by unloading the surplus cheaply upon distant markets. This is a temporary expedient designed to give time for a readjustment of normal output to normal demand at remunerative prices; it is employed to get rid of an actually accumulating surplus stock, to substitute a gradual for a sudden restriction, and to allow the slower normal forces regulating the distribution of industrial energy to establish a more stable equilibrium between supply and demand in the trade.

It is easy to understand how in the new conditions of world-competition in manufacture the difficulty of estimating future prices is such as to involve the frequent accumulation of surplus goods which their makers may seek to sell at a price below their "separate cost of production” in a foreign market, if by so doing they can keep up prices in the home market to a level which leaves a margin of profit. If this policy enables any net profit to be earned on the output as a whole, it is evident that this "sacrifice" on the dumped goods is an essential condition of this earning, and that to regard them as involving a dead loss, under the conditions of their sale, is not justifiable.

§4. So far we have treated "dumping" as it may arise under free competition of manufacturers. Apparently the earliest examples of "dumping" manufactured goods in foreign countries on any considerable scale belong to this individual business policy, as practised by English manufacturers.1 Where manufacturers enter into concerted action for the maintenance of profitable prices, they may have recourse to two methods: they may agree to restrict their whole output, or what comes to be the same thing, not to sell any goods at less than a fixed price, or they may agree to restrict the supply for the home market, fixing a profitable price for this market, and to "dump” any surplus produce on export markets at any price or at an agreed lower price. This latter practice has been occasionally pursued for some years past by organised bodies of manufacturers in England, Germany, America, and other countries. There is no evidence that in any of these countries it has been adopted as a part of a permanent industrial policy; it has always figured as a temporary expedient for getting rid of surplus produce without spoiling the home market.

Where the joint forces of trade combination and tariff protection give a body of manufacturers such a control of the home market as to enable them to fix highly profitable prices, this policy of "dumping" surplus goods on foreign shores becomes at once more expedient and more feasible. Under ordinary con

1 Cf. Professor Ashley, The Tariff Problem, p. 70.

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ditions of free competition in an unprotected home market it is, of course, possible that individual firms, which find themselves with surplus stocks, or are producing faster than they can find a market for at ordinary prices at home, may prefer to sell this surplus more cheaply abroad. It is, however, obvious that, unless the home market is protected by import duties, they cannot do this to any great extent, or adopt it as a business policy, because, if the price at which they sell abroad is considerably lower than the home price, they will have to meet their own "dumped" goods reimported and competing with them in the home market. If dumping is regarded as anything other than a small casual incident, it requires either protection of the home market or closely concerted action of the body of manufacturers in a trade, or both, as indispensable conditions. It seems as if both protection and trade-organisation were necessary to establish anything that we are entitled to call a policy of dumping. If really free competition of a number of producers were maintained in a protective country such as America, it must generally pay a manufacturer better to cut down prices rather than to seek a foreign market at a definitely lower price. This, indeed, is what actually takes place when some improved method of production enables a number of competing firms largely to increase their output. The cutting of home prices down to a point of no-profit is the direct and most urgent motive to the formation

of agreements, combinations, "trusts." Protection in the form of import duties cannot by itself form an economic foundation for a policy of dumping. Where a legal system of export bounties exists, in addition to import duties, of course dumping may become a business policy even for producers competing freely in their home market. Canada thus "dumps" iron on the British market at low prices made up to the exporters by taxes paid by the body of the Canadian people.

A combination of manufacturers or other producers, however strong, would hardly be able to maintain a policy or a repeated practice of “dumping" in foreign countries, unless they were substantially protected against the reimportation of their dumped goods. Hence we must conclude that both protection and combination are essential to a policy of dumping, i.e. a system of selling abroad more cheaply than at home. Where these two conditions coincide, it is at any rate theoretically possible that this discrimination of home and export prices might be systematically maintained. A German Kartel or an American trust virtually controlling their home market, might maintain a relatively high price at home, and continue to sell abroad at prices sufficiently lower to enable them to dispose of the rest of their regular output. It is important to recognise clearly this theoretic basis of dumping, not merely as a casual expedient for dealing with over-supply, but as a possible permanent business policy.