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$5. Some who will easily recognise that it is not right to impute a separate cost to the margin or surplus required to ensure a trade, or to some casual surplus which it is best to sacrifice, refuse to admit that it can conceivably pay a trust or a group of protected manufacturers to sell abroad a regular part of their output at a price which would involve a net loss if all their output were sold at this price.

The theoretical feasibility of such a policy can be best demonstrated by hypothetical figures. A mill running at its full capacity can turn out 900 tons per diem at a cost of (say) 175. per ton; running at twothirds capacity it turns out 600 tons at (say) 195. per ton. Assuming that the same market price 255. could be got for the 900 tons as for the 600 tons, the profit on the full working would be (900 x 8s.) 7,200 shillings, or £ 360 per diem, as compared with the profit on a two-thirds working at (600 x 6s.) 3,600 shillings, or £180 per diem. It is, however, evident that the same price cannot be got for the 900 tons as for the 600. It is quite possible that if 600 tons could be put on the market at 255. per ton, thus yielding a net profit of 6s. per ton or £180 on the output, 900 might bring down the price as low as 195. per ton, yielding a net profit of only 2s. per ton or £go on the output. But if it can be arranged to separate the protected home market and the foreign market, and to sell 600 tons in the former at 25s. per ton, and 300 tons in the latter at a dumping price of

even 16s. (less than "cost" price on the full output), the profits on the 600 tons would be (600 x 8s.) 4,800 shillings or £240, the loss on the 300 “dumped” tons would be 300 shillings or £15. The total output of 900 tons would thus fetch a profit of £240 - £15, or £225. The so-called loss of £15 on the “dumped portion of the output is the condition of earning 8s. per ton profit as compared with 6s. per ton on the 600 tons sold in the home market.

This possible economy rests on the so-called law of increasing returns, or, in other words, on the fact that a large part of the expenses of production is relatively fixed, increasing much more slowly than the increase of output.

$ 6. Thus it is quite clear that a trust or other noncompeting group in a protected country might conceivably find the technical economy of producing on the larger scale permitted by an export trade so great, that it would pay them, as a continuous business policy, to supply a foreign market at what appears to be “ below cost price.” There are various ways in which this low export price may be regarded. It may be said that the real or true economic price for the whole output lies between the artificially high home price and the artificially low export price, the home consumers, in fact, paying part of the true price for the foreign consumer. This correctly describes what happens: the home consumer subsidises the foreign consumer.

Or we may treat the export goods as a by-product in relation to the home products; the latter can only be economically produced on condition that the former are also produced, and once produced it is better to sell them for what they will fetch, like a pure by-product. A by-product is not considered to have any cost price, certainly no separate cost price can be imputed to it. So with these dumped export goods, they may be considered as having no true cost price. But it will presently appear that they cannot strictly be treated as pure by-products, because the price they fetch does affect the question whether they shall be produced or how many of them shall be produced. The truth is, that this phenomenon of dumping is the most convincing exposure of the economic fallacy of imputing to any portion of an output a separate cost of production. The true formula runs thus: If 1,000 tons be produced, each ton costs los. ; if 2,000 tons be produced, each ton costs 8s.; if 5,000 tons, 7s., and so on. But if the cost of a ton always depends upon the number of other tons produced along with it, a ton can never be rightly regarded as a separate economic unit with a separate cost attached to it. It is only the whole output that has a true cost. The business man who handles this output for the market, though he has to sell it in pieces, will not consider that he must sell each piece so as to make a separate profit on its proportion of cost of production to that of the whole

output; he will aggregate the prices he gets for the several portions of the output and treat this aggregate as one price, just as he treated the aggregate cost as one cost. He will always consider the effect of a separate sale upon his market as a whole, recognising the utility of discriminating prices both in home and foreign markets so as to secure the largest aggregate profits. He will, of course, also consider the details of the separate sales, refusing to sell certain goods below a certain price, not ultimately because this price is "below cost," but because it is so cheap as to react unprofitably upon the aggregate net profits, or even to affect injuriously the sale of future outputs. In a word, excepting where what is called the law of Constant Returns prevails, i.e. where there is no net technical advantage in producing a larger or a smaller output, there is nothing that can be rightly called a separate cost of production for units of output.

The fact that discrimination of prices takes place in disposing of an output does not therefore warrant us, in serious economic analysis, in attributing a separate profit or loss to each portion by comparing the price got with a separate cost attributed to its production. It is, then, an established economic possibility that a non-competing group or interest, in a protected country, might find it profitable as a lasting policy to sell goods abroad at a price definitely lower than they could there be produced

with equal capital, skill, and industrial knowledge. Or it might find it profitable only occasionally to resort to this method of disposing of a surplus. Or, finally, it might “dump” cheap goods in order to break down the home trade in a foreign country, with the object of capturing the foreign market and then raising prices.

To either of the latter two practices the especial economy of large-scale production which we have just considered is not essential; we have seen that in retail trade resort is had to getting rid of a casual surplus by selling it for what it will fetch in a distant market, while the policy of selling cheap for a while in order to break a competitor and capture a market is common throughout the world of commerce. The trust or non-competing group in a protected country is, however, in a stronger position to utilise either of these policies than are other producers.

$ 7. Before considering the case of a permanent policy of discriminating prices, it will be well to discuss the feasibility and the desirability of using import duties as a means of counteracting these sorts of "dumping."

Dumping as a means of disposing of a temporary surplus has been shown to be a general practice. Is there any sufficient reason to distinguish foreign from domestic dumping and to provide against it by tariff enactment? The question is one, not of economic principle, but of economic and political

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