parison of international efficiency is fully and fairly maintained is this division of labour effective in securing the maximum of world-wealth and in enabling the members of each co-operant nation to secure a larger quantity of wealth for themselves than they otherwise could obtain. Efficiency in division of labour leads each nation to produce more, efficiency in exchange enables it to consume more; and as these two efficiencies are interdependent, the doctrine of the utility of free exchange may equally be regarded as a producer's or a consumer's policy. The complete economy demands, as we have seen, perfect mobility of capital and labour or the abolition of non-competing groups. But the fact that this condition is not reached, and that, therefore, commodities cannot exchange in the exact ratio of their marginal costs, does not one whit impair the advantage of maintaining a policy of free exchange among commodities actually produced under these unequal conditions. Free exchange always tends to equalise the costs of production and so to enforce a better division of labour.

Nations whose members trade freely with one another will therefore establish a division of labour on a basis of relative efficiency for the various processes of production. Each nation will produce for itself the greater part of the commodities and services it requires, though these commodities and

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services may be of the same sort for each nation; the production of bulky and of perishable goods, of special goods adapted to the national or local taste, the final processes of production in many trades where the demands of a fluctuating market must be met, the entire vast trades of internal transport, building, and of distribution, almost all the professional and other intellectual work, domestic and other personal services, these departments, constituting the greater part of the national industry, are by their nature precluded from international division of labour.

Though increased speed and cheapness of transport, and improved methods of preserving perishables, throw an increasing number of commodities into the arena of the international market, the proportion of the national productive energy submitted to international division of labour at any given time is subject to tolerably rigid limitations, and, as we have seen, there is reason to believe that the proportion of that energy will diminish in nations which attain the higher reaches of civilisation, demanding more highly individualised forms of national consumption and devoting a larger share of their effective demand to non-material goods.

§ 2. The extractive arts of agriculture and mining, manufactures, and the services of sea-transport and finance form the staples of division of labour among nations. Every nation does some of each of these

kinds of work for itself, but it does very little of some kinds, a great deal of other kinds, using the surplus of the latter to purchase enough of the former to meet its requirements for consumption.

There can be no fixity in this division of international labour; under Free Trade or under Protection, what any nation buys from other nations, and what it pays with, will be changing all the time. In proportion as free exchange prevails, each nation will specialise along the lines of the relative advantages it enjoys at the time for the various industries. Where strongly marked, persistent natural conditions of climate, soil, position, are bases of an important national industry, that industry will have a high degree of permanence as a factor in the make-up of the export trade. The strong, lasting export trades of Great Britain-cotton, coal, shipping, banking-all enjoy some such element of natural superiority as a basis of other acquired aptitudes.

The adoption of protective systems by a number of other nations, in order to counteract such natural or acquired aptitudes, may, of course, succeed in preventing a nation from using to the full this natural choice of purchasing power in the shape of exports to pay for the imports she requires. But for the protective tariffs of the large Continental countries and of the United States, Great Britain would probably be somewhat more specialised in textile, metal,

and certain other manufactures than she is now, sending out larger quantities of these sorts of goods to buy her imports with. Probably the total volume of her export and import trade would be larger than it is. But the embargo placed by foreign protective systems on these British goods by no means represents a corresponding diminution-(a) of British exports in general, (b) of these classes of exports in particular. For there will be two readjustments in British export trade, as the result of a tariff placed by certain foreign nations upon certain classes of imports from Great Britain. We shall in the first place divert our export trade in these excluded goods from highly protected to lowly protected or open markets of other countries, ex hypothesi a less profitable trade, and probably for this very reason a somewhat smaller trade. In the second place, we shall send out other exports to the high-protective countries to take the place of the excluded exports, if we can find any goods where our relative advantage of production is nearly as great as in the case of the former exports, and where no considerable import duty keeps us out. Just as each nation finds out, under conditions of free exchange, the kinds of goods and the quantity of each it pays her to produce and exchange for various quantities of other kinds of goods she cannot make or make cheaply, so now the artificial rearrangement of industries in foreign countries arising from a tariff will compel a free-trade country to change

the current, the volume, and to some extent the nature of her export trade. She will buy her imports partly from different nations than before, partly from the same nations, but indirectly. Nor will she import the same proportions of the same goods as before. For the difference in her modes, sizes, and places of payment will change the kinds and amounts of goods she will find it most profitable to import. The following is a practical illustration of the application of this theory in modern commerce :

"Take the trade between the United States and this country. We import thence in value about four times as much as we export thither. Part of this excess comes in discharge of debt of one kind or another; but much of it is paid for indirectly by exports of our manufactures to countries from which the United States receive large supplies of tropical and other produce, but to which they send comparatively little merchandise of any kind in return. Among these countries are India, China, Brazil, Cuba, the British West Indies, Colombia, Ecuador, Venezuela, Japan, and Egypt. To all of these the exports of British productions are in excess-often very largely—of our imports from them. It is clear, therefore, that although we export very much less merchandise to the United States from the United Kingdom than they send to us, or, to put the matter in another way, the United States by their high tariff prevent us from paying them directly for the enormous amount of produce which we take from them, they do not and cannot prevent us from supplying our manufactures in payment for the produce which they draw from tropical and other regions. Why? Simply because our manufactures, suited to the wants of those regions, are cheaper, i.e. produced at less cost than their own."