facturers, in competition with one another as well as with our manufacturers, are selling goods in our market, the effect of any protective duty must be to check their sales, for those who are working so near the margin of profit that they can only just undersell our manufacturers at current prices will not be able to meet the demand of the importer that they shall lower their prices to recoup him for the payment of the import duty. The supply of goods being thus reduced by the stoppage of weaker import goods, while demand stands as before, prices must rise. They cannot rise to the full extent of the 10 per cent. duty except on two improbable suppositions: first, that a rise of price will have no effect in checking demand; secondly, that none of the foreign goods can afford to pay any of the tax, so that, until the price rises the full 10 per cent., all imports are kept out.

Even in the latter case, which is that of a prohibitive duty, it does not follow that the price to the consumer, as the result of substituting home for foreign goods, must rise to the full extent of the duty. Whether it will do so depends on two conditions of home production and home competition. If the article excluded be a necessary or prime convenience, the demand for which is not materially affected by a moderate rise of price, while the home supply cannot be enlarged to displace the former foreign supply save by employing inferior appliances

or labour, the price might rise nearly to the full amount of the duty plus expenses of collection. In no other case could this happen. If the article excluded were a luxury, any considerable rise of price, due to the cessation (or even a large reduction) of import, would commonly be attended by a considerable fall-off in demand, and a new price-level not much above the old might be reached by a slight stimulation of home production. If the home product were only slightly undersold by the foreign goods, upon which the duty is now laid, it appears that the substitution might be effected without any considerable rise of prices to consumers, or any large reduction in the total supply. The extent of the rise of price and the relative incidence of the tax depend upon elasticity of demand and of supply, i.e. how far a given rise of price will check demand of consumers and stimulate supply of producers at home, and how far a given fall of price will check supply abroad and stimulate demand of consumers there. The question is one of delicate readjustment on both sides. A general protective duty of 10 per cent. on foreign manufactures must have a variety of different effects on different classes of goods.

The only conclusions of general validity are those which hold of all protective or preferential duties. First. They must raise prices to the consumer. Second. They cannot raise prices to the full extent of the duty.

Third. Since the higher prices will be paid, not

only on the imported goods, but on the entire home supply as well, the sum paid by the consuming public will commonly exceed the sum received by the treasury. Where a protective" duty thoroughly protects, excluding foreign goods for the benefit of home producers, the treasury receives nothing and the consumer pays a price which approximates to the old price plus the duty.

§ 5. This argument, so far as relates to home prices, is based upon the supposition that genuinely free competition is maintained among British producers. The conclusion that the rise of prices due to protection will not normally cover the whole duty, so as to throw the entire burden on the consumer, presupposes that no agreement takes place among British producers as to prices. But in actual practice it is likely to be otherwise. Even under free imports British manufacturers are constantly engaged in limiting their competition by fixing price-lists to which they more or less adhere. Protection greatly stimulates this process. Under a protective tariff British producers would have a greater inducement to combine upon a rise of prices, and such combination would be more feasible. In highly developed industries a protective tariff favours combination, and its necessary effect is to raise prices to the limit set

by the duty. Thus, where under strictly competitive conditions the consumer would not bear the whole burden of the tax in higher prices, the normal tendency of actual trade is to compel him to do so.

§ 6. One point of critical importance remains. In the foregoing argument I have confined myself to tracing the effect of separate duties upon special markets. But where a system of protective duties is adopted, the effects are not single, but cumulative. If a 2s. duty were imposed on wheat or a 10 per cent. duty upon a particular manufacturing import, we saw that the natural result would be a rise of price to something less than the amount of the duty. But when a general protective tariff is adopted, prices tend to rise to the limit of any tax. Our supposition that wheat prices might rise Is. 6d. was based on an assumption that wages and other expenses of production of British farmers remained as before the adoption of the new fiscal policy. But if the price, not only of food, but of all manufactured goods for labourer and for employer, is going to rise by the operation of an all-round tariff, the normal expenses of raising wheat at home will rise, and this increase will force prices of wheat up beyond the Is. 6d., by making it unprofitable to grow wheat on some land where otherwise it could have been grown. So the effect of the general tariff will be to make wheat prices approximate the 2s. limit, and when they do this the farmers will quite naturally complain that the

"protection" afforded them is inadequate, because as much foreign wheat enters as before, and though their money price for wheat is higher, their raised expenses of production makes farming no more profitable than under free imports. This is the force which in France and Germany has been effective in inducing a series of increases of the duty upon agricultural goods.

The same argument applies to the manufacturing tariff. The separate effect of a 10 per cent. tariff on a class of goods may be to substitute British for foreign goods by a rise of 6 or 8 per cent. in price. But that effect presupposes expenses of production based on the same prices of food and other commodities as before. But agricultural protection will have raised the expenses of the food of town-workers, the 10 per cent. duty on other classes of manufactured or semi-manufactured goods will raise the price of plant, machinery, and perhaps raw material; on every hand the manufacturer will find expenses of production higher than before. Thus he too will be impelled to a rise of the prices of his goods towards the full 10 per cent. which marks his limit of protection; he too will then clamour for a rise of the 10 to 20, 30, or 50 per cent.

The full burden of a protective tariff borne by the members of the protecting nation is measured by the diminished national production of wealth due to an artificial diversion of producing power from more