tent) of labour between different nations for large capitalist enterprises is increasing.

(b) An increasing number of nations which are cosmopolitan as regards capital and labour are entering the field of modern industry.

(c) The cosmopolitanisation of inventions and industrial methods tends to equalise expenses of production in different nations, and so, by increasing the number of competing "nations" in the various markets, to establish international exchange according to the ratio of marginal costs independently of the direct flow of capital and labour between the several nations.

(d) Substitution, or a wider choice of materials and methods in processes of production, and in materials and methods of consumption (the result of an increased exploitation of the materials and forces of nature and a more intelligent rationale of consumption) reduces the economic strength of monopoly or scarcity.

These considerations justify the theoretic treatment of international exchange in accordance with the laws which regulate ordinary cases of exchange among members of a competitive society. As in the latter, so in the former, a number of cases where the conditions of monopoly or scarcity are dominant must be reserved for special treatment.

APPENDIX TO CHAPTER IV.

This application to international exchange of the same laws as apply to individual exchange is of course opposed to the general practice of economists, who have followed Mill's contention that "the value of a thing in any place depends on the cost of its acquisition in that place; which, in the case of an imported article, means the cost of production of the thing which is exported to pay for it" (Book III. chap. xviii. § 1). This, sometimes spoken of as "the first law of international values," is not a law at all. To say that "the value" of an imported article means the cost of production of the thing exported to pay for it merely affirms that the value of the foreign article is equal to (or signifies) the article exported as its equivalent. What we desire to know is, "What determines the quantum of the export goods we pay with?" Mill's statement affords no assistance in answering this question, as, indeed, he admits a little later: "The value, then, in any country, of a foreign commodity, depends on the quantity of home produce which must be given to the foreign country in exchange for it. In other words, the values of foreign commodities depend on the terms of international exchange."

So early in his analysis does Mill collapse into sheer tautology. He then admits the "embarrassment" and expresses his intention to "fall back upon an ante

cedent law, that of supply and demand." But it soon appears that he has no such antecedent law at his disposal, for he proceeds to formulate a law based exclusively on "demand," reverting to a one-sided "utility" theory of international value to balance the equally one-sided "cost" theory which he applied to ordinary processes of exchange. "When two countries trade together in two commodities, the exchangevalue of these commodities, relatively to one another, will adjust itself to the inclinations and circumstances of the consumers on both sides." The illustrations by which he seeks to fasten this principle on the mind of his readers assume, not merely that the two countries are absolutely "non-competing groups," but that there is absolute rigidity both in supply and demand on both sides. Even then the law does not carry him very far, for he recognises "that several different rates of international value may all equally fulfil the conditions of this law" (§ 6), and in fact the actual limits within which the rate of exchange will vary are limits set by costs, and not by utility acting on demand. "We know that the limits within which the variation is confined are the ratio between their costs of production in the one country and the ratio between their costs of production in the other" (§ 2). What Mill (82). does recognise, when he is confronted with International Exchange, is that his general law of Value as previously formulated is defective, when applied to cases of monopoly in scarcity of supply. In such

cases value appears to depend entirely on the demand side, because supply being ex hypothesi fixed, all changes of value are directly the products of changes in effective demand.

So far as Mill's reasoning is valid, it has no special applicability to international trade, but to monopoly or scarcity values in general. The assumption that international trade, either wholly or for the most part, falls under this head is, we find reason to believe, invalid.

CHAPTER V

NON-PROTECTIVE IMPORT DUTIES

WHI

HILE the main current of international exchange flows so as fairly to equalise the gains of barter, cases evidently arise where, in theory at any rate, it is possible for a nation, by a policy of import or export duties, to turn the balance of trade to the advantage of its members. Where a nation contains an industry which possesses a natural monopoly, or some great advantage in production controlled by a group of businesses which do not compete freely with one another, it can export this class of goods at an advantage into countries which possess no similar advantages in producing articles for export. The extent of this scarcity gain will seem to depend on the two conditions which determine all values, scarcity (dependent on "costs" or natural limitations) and utility. If such article of export is kept very scarce, and the marginal utility of this limited supply is very great, it enjoys a great advantage in international exchange. But such advantage is not