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conceiving a dislike for A, charges him a higher price than B or C for grinding his wheat, or exercises a similar preference in exchanging bread for the product of the carpenter, the smith, or the tailor. The effect might be to drive A from farming, where we saw his work was most serviceable to the group, into carpentering or tailoring, where it would be less serviceable. So with any other preference exercised by D or any other person in the terms of exchange. Such preference would injure the aggregate productivity of the group, and each member would suffer.

The recipient of such a preference might seem to gain; but part of that gain would be offset by a loss he would suffer in his exchange relations with the rest of the injured community. Moreover, such preference here assumed, in order to test its result, is not a valid hypothesis in a society supposed to be actuated by self-seeking motives. For D, or any person, thus venting a grudge or bestowing a favour, is sacrificing his own personal gain, for this discriminative conduct, impairing the general economy, reacts injuriously on him in his exchanges. If the result of his action is to drive A from farming and put E or F in his place, he will have to pay more for grain, owing to the reduced productivity of the farmers.

§ 4. So long as the community is so small that' there is not work enough for more than one carpenter,

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tailor, shoemaker, etc., this economy of Free Exchange works with some considerable friction. It would not be easy to know that the right man was acting as smith, carpenter, or tailor, nor would it be easy to know that he was not exchanging his goods against other goods at a higher rate than he ought. As long as a tailor or a carpenter had a “monopoly” of the trade, he could only be prevented from arbitrarily raising the rate at which he would exchange a coat or a table against flour or other goods by forcing the others to try and make their own coats or tables, or else to do without these conveniencesboth of them expensive checks.

Hence, though even in the simplest society, freedom of exchange does conduce to the best economy for all and each, in order to function effectively, direct competition must support the power of substitution. If A were the only wheat grower, he might use his power to exchange his wheat too dearly against coats, boots, or furniture, and so impair the general productivity by forcing D, E, F, etc., either to spend part of their time in cultivating wheat land or to consume less food than formerly, and so to damage their general efficiency. The existence of direct competition between A, B, and C prevents this waste; and since each in his turn gains from the maintenance of the maximum efficiency of the group when he comes to exchange his surplus wheat, the competition or rivalry between these

farmers does not prevent our recognising them as co-operative members in the general industrial process.

$ 5. Next let us suppose the settlement grows more numerous, and some of the farmers decide upon crossing the creek to cultivate land along the other bank. They are accompanied by one or more members of the other trades, and they set up a separate village on the other side. Intercourse is kept up between the villages; the villages, as villages, do not trade with one another, but the individual villagers do. It evidently remains desirable for each and all that this intercourse should continue quite free. To place a toll upon goods crossing the river because their producers lived on a different side of the stream would evidently be as foolish and as injurious as to put a barrier upon the free intercourse between these same producers when they occupied different streets in the same village.

The real trade is entirely conducted between individual members of this split community, and it is advantageous for each of them to buy and sell most freely on both sides of the stream. If one chooses for any purpose to assess separately the aggregate wealth of each of the two villages, it will be found to be greatest in proportion as this perfect freedom is secured. Any barrier set upon the transport either of persons or goods must, by impairing freedom of exchange, impair the real income obtained through

processes of production and exchange for each village and each villager.

§ 6. Next suppose that the village on the other side of the creek set up a separate government of its own, or were annexed by a neighbouring state which claimed sovereignty over the land on that side of the creek, would this fact of political separation affect the utility of preserving the policy of free exchange between the persons living on both sides of the creek? Obviously not. Freedom of exchange would still tend to make each person on either side dispose of his labour-power and his capital in a manner which conduced to the maximum productivity of the two villages, regarded as an economic group; and each villager would continue to get a share of this productivity which would be larger than he could get by any other disposition of economic resources. The political separation of the two villages could not in itself affect the economic gain of maintaining the old relations. Except where political interference with these trade relations is expressly contrived, there is no plausibility in the mistaken notion that villages, towns, or nations engage in trade with one another. In our example it is not the villages which exchange with one another, but individual villagers; and whatever opposition of immediate interests arises in trade intercourse, is more frequent, keener, and more persistent between persons engaged in the same trade in the same village than in the different villages.

What applies to these two villages, politically divided, applies to the entire states of which they form part. No jot or tittle of the economy of Free Exchange is abated by increasing the number of persons on both sides of the stream engaging in commercial intercourse, or by expanding the trade-area. These primary verities and utilities of Free Exchange are nowise affected by the fact that the persons engaging in exchange may be gathered into two or more separate groups for purposes of political government. It is true that the possibility of economic selfsufficiency is greater as the group is larger and admits more division of labour ; but this does not cancel the damage of erecting barriers. For every extension of the area of free markets secures a more effective division of labour, a larger general production of wealth, and a larger absolute share for each free participant. It is of prime importance to keep in mind the fact that political units are not commercial units. Nations do not trade with one another. The notion that they do is falsely suggested by the fact that governments, acting in the real or supposed interest of certain of their citizens grouped in "trades” or “interests,” and exercising political influence in order to benefit their private businesses, establish “ tariffs” and other politico-economic devices. The practical influence which political boundaries exercise, by limiting the mobility of capital and labour from one state to another, will receive due consideration

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