to increase the general volume of employment, and not merely to stimulate certain trades by depressing others, it can only do so on condition of increasing the share of the general income which goes to the wage-earning and lower middle classes.

§4. Now the advocates of a protectionist policy have seldom claimed this result, nor have they admitted the application of this economic test. The conflict of argument between protectionist and free trader upon the "unemployment" issue has, in fact, been inconclusive and even futile, precisely because both contestants have ignored the only reasonable criterion of improved employment, viz. a rising standard of consumption.

Both parties have commonly resorted to single concrete cases or to the effects upon individual trades, which are fallacious modes of argument. The futility of such a discussion may be illustrated by a single instance. The London County Council orders for its tramways a quantity of steel rails from Belgium because it can buy them there 20 per cent. cheaper than in England. The protectionist objects, on the ground that though the rails would have cost more if bought at Leeds, this extra cost would be far more than compensated by the net increase of employment afforded to English capital and labour. The free trader replies that no more employment is given to English capital and labour by buying the rails in Leeds than by buying them in Belgium,

because if we bought them in Leeds we should not produce the goods which would be exported to pay for them if they came from Belgium. The protectionist replies, "It is true we should not export these goods to Belgium, but they (or their equivalent) would be produced in England all the same: instead of being sent in export trade to pay Belgium, they would go to Leeds to pay for the same rails produced there. The net result is that as the result of refusing the Belgian tender and buying in his own country, more is produced and more is consumed in England." The free trader may point out that the production of the steel rails in England is ex hypothesi more expensive, and involves a larger employment of capital and labour than if bought from Belgium, and that this excess in expenditure on rails involves a corresponding reduction in expenditure on other articles which are made in England. In the case taken, this reduction on other articles amounts to 20 per cent. of the expense of the rails. "But even allowing this," the protectionist replies, "the result of buying the rails in Leeds is that 80 per cent. of the expenditure employs additional British capital and labour."

So far the argument has not assumed the operation of a tariff. But suppose a tariff, imposed for the purpose of inducing the County Council to buy Leeds instead of Belgian rails, enabled the Leeds firm to raise its prices beyond the free-trade price by

20 per cent. or more. Even then, it is contended by the protectionist, 60 per cent. of the price paid for British rails represents employment which would have been lost, without compensation in other trades, if the order had gone to Belgium. Now this protectionist conclusion, though the free trader commonly haggles at accepting it, is correct. But what does it amount to? Simply this, that there exists in most trades, at most times, a margin of productive power in capital and labour not fully employed; so an order placed in England, instead of going abroad, is in ordinary times capable of execution without calling for any capital and labour to be diverted from any other employment, as the free trader commonly insists must happen. The real fallacy which underlies the argument is the supposition that because the existence of a margin of unutilised capital and labour makes it possible to get a single additional order executed more expensively in England without diverting capital and labour from other employments, this process can be enlarged indefinitely, and can be made the profitable basis of a fiscal system, which Ishall divert whole trades from the Continent into England, or keep them in England when otherwise they would have gone abroad. The necessary margin required for elasticity of business can be trenched upon for the execution of a single or a few extra orders, but it cannot contain the reserve productive power for a new large trade obtained by preference.

This seems so obvious, that one is driven to ask how it can appear possible for employment to be artificially created for English trades by preferential or protective methods without seeming to cause a diversion of capital and labour from other more productive employments into the newly subsidised trades. If every trade or most trades were normally in the condition supposed by those economists who scout the possibility of "general over-production," the margin of productive energy in a given trade must be a very small proportion of the whole, and it would appear quite impossible to divert foreign orders to British firms through a tariff, without depleting other British industries of their capital and labour to increase the productive power of the favoured trades.

But if we once admit the possibility of that larger margin or excess of productive power which is proved to exist, not in a few trades, but in most trades, during periods of slackness or depression, we begin to comprehend the true underlying source of the plausibility of protection. The protectionist says, if he understands his case, "You are right in urging that if we stop the imports which compete with our own products, we must stop the export trade which pays for them; but you are wrong in arguing that the goods which represented that export trade will cease to be produced, for they will be wanted to remunerate the British capital and labour which

make the goods formerly imported: moreover, you are wrong in saying that capital and labour must be diverted from other industries to make these goods; the stoppage of the imports has led to the employment of British capital and labour which previously represented an unnecessary waste." The practical business man is likely to be impressed by this argument, because he is well aware that in assuming the existence in ordinary times of a considerable margin of unemployed energy of capital and labour in most trades, the protectionist correctly describes the actual conditions of modern industry.

§ 5. The real case for protection, as I understand it, rests upon this assumption, that in normal times there does exist, not the smallest margin of capital and labour needed for current trade adjustments, but an amount considerably larger than this, and that, if a tariff can be framed to substitute the employment of this productive energy for that of foreign capital and labour, the volume of our production will be greater. It may, indeed, be objected that more British capital and labour is required to produce the product than the foreign capital and labour which formerly produced it, and that, to pay the higher price thus caused, some consuming power must be diverted from other applications, with the result of causing unemployment in these other industries. But on the hypothesis of the existence of a considerable suplus-producing power, this new un