artificially the value of goods we desire to import that taxation, in economic theory at any rate, may furnish a remedy.

§3. Goods produced by foreign nations, cheaply, under freely competitive conditions, obviously make for our advantage in the process of international exchange. Now Great Britain is in this position, that a larger proportion of her imports are produced by industries employing cheap labour and competitive capital than is the case with other nations. The food and raw materials, which constitute the bulk of British imports, are grown under conditions which keep the price close to a competitive marginal cost: a very small proportion of them, such as rubber, diamonds, special qualities of wine, tea, tobacco, lending themselves to any considerable enhancement of values. Similarly, most of the manufactured imports into Great Britain are cheap products of competing foreign industries. This indeed is the head and front of their offending.

Thus it appears that the fact that nations are in large measure "non-competing groups," in the sense that capital and labour do not flow freely between them, is not to any great extent a source of scarcity values for purposes of international trade, so far at any rate as Great Britain is concerned. For the scarcity values which arise in nations trading with us are mostly confined to goods and services destined for internal rather than for external trade.

This was not always so, nor is it so now equally in

all sorts of foreign trade. The earlier international trade consisted chiefly in exchange of articles which were the peculiar products of the respective countries based on some advantage of natural resources, secret process, skill, or custom. Such was the early trade of Eastern, and later of Western Europe with the East-spices, gems, costly cloths, exchanging for silver, tin, copper, slaves, etc. The opening up of world markets by modern facilities of transport has, however, transformed the character of international commerce. It has destroyed the monopoly of single nations in the sale of rare commodities, by opening several alternative sources of supply; still more important, by cheapening and quickening transport it has enabled great masses of foods, raw materials, and manufactured goods to pass from one nation to another, not because the latter nation could not produce them, but because it could not produce them so advantageously. Every extension and cheapening of transport increases the part played in international trade by common products and reduces the part played by uncommon products.

So whereas in earlier trade natural scarcity and special skill characterised a large part of the articles of international exchange, most modern imports and exports are produced under competitive conditions, which keep down profits and wages to a low level. Though there may be considerable differences in the profits and real wages of those who supply our

imports of wheat, sugar, and hides, in various countries, those differences, expressed as differences of cost, will be far less than in the case of rare special products; and what is even more significant, they will be far less than the differences between their marginal costs and those of other classes of commodities and services in their own country.

Taking the general current of international trade, we find it consisting more and more largely of common articles from the production of which elements of scarcity, and therefore of monopoly-gain, are excluded. Barter of such articles, as we have seen, tends to take place on a basis of equality of marginal costs. When groups of producers in several nations contribute to the market for various common classes of commodities in international exchange, the mere fact that capital and labour does not flow from one nation to another will not prevent the competition of the market from tending to equalise the final costs in the several competing countries. Where, as is now the case, certain " new countries are drawing capital and labour from other countries which do not freely exchange capital and labour with one another, these former tend sensibly to equalise the conditions of international exchange among the latter.

§4. Thus we may conclude that a large and increasing proportion of international trade consists in the barter of goods produced under conditions of

tolerably free competition in the country of their origin, and prevented further from exchanging at a premium by the fact that several nations are contributing to each supply.

The inequality of exchanges based on the theory and practice of "non-competing groups" is thus seen to be a far more potent factor in internal than in external trade. Far more injury is done to the economical division of labour by artificial restrictions of the flow of capital and labour within the several nations than by restraints on the international flow, and far larger inequalities are produced in the terms of internal exchange of goods and services by the former restraints than in the terms of external exchange by the latter.

There is therefore a primâ facie justification for the view of Socialists and radical social reformers that proposals to redress, by tariffs or other public instruments, the terms of international exchange are designed in the defence of the group-interests which wield a power to extract surplus gains in processes of domestic exchange. In particular, the gravest inequality of exchange in internal trade, where common forms of manual labourr-power are exchanged against finished goods and services which contain large elements of scarcity-value, though not absent from international exchange of commodities, is reduced there to a minimum by reason of the universal prevalence of forces tending to keep down

in almost every country the remuneration of the lower sorts of labour-power to a level of bare subsistence and low-grade efficiency.

§ 5. We thus reach the conclusion that the theory of international exchange is not rightly based on the assumption that nations are "non-competing groups," and that the ratios of exchange between their members are therefore generally determined by the laws of exchange between owners of monopoly or scarcity goods. The general law of international exchange will conform rather to the conditions of free exchange between competing individuals and groups, the ratio of exchange being determined by the relative marginal expenses of production of the respective commodities. The general applicability of this law is not appreciably impaired by the fact that standards of real wages and of other expenses of production may differ considerably in the various countries whose members engage in competition and exchange.

Modern world-tendencies continually make towards an international exchange based more upon comparison of final expenses of production and less upon conditions of monopoly or scarcity, as the following summary will indicate:

(a) Direct mobility of capital and (to a less ex

1 The growth of Trusts and other "combines" in the export trade of some countries must at present be regarded merely as qualifying, not as reversing, the more general trend of forces.