CHAPTER IV

INTERNATIONAL TRADE

THE methods and machinery of internal trade having been dealt with, we have now to extend our view to the commerce which takes place between individuals living in different countries. Such trade is described as "international," though it may be remarked that, strictly speaking, trade is always personal or individual in its character. Save in circumstances of extreme rarity, France does not trade with England, but a Frenchman with an Englishman. And such trade may arise from various causes. The United Kingdom may trade with Cuba, in the individual sense described, because Cuba can grow tobacco and the United Kingdom cannot, and we can make muslins which Cuba cannot produce. Or again, we may buy silk brocades from a Japanese merchant because Japanese artificers can make them so much more beautifully than we can make them in England; and the Japanese may buy calico from us because our calico is better made than theirs. Sometimes the influence of the great productive laws determines the nature and direction of such trade; for a new country has not had time to feel the difficulties. arising from the law of diminishing return, and can as yet grow crops of wheat easily, but has not

yet developed "power" sufficiently to produce readily the materials of clothing; whereas the old country, which under increasing return can easily produce all the clothing it wants and plenty for export as well, has begun to find it difficult to obtain from its own soil the requisite increases of food for a growing population. Thus trade arises between two nations, whenever that trade is found to be the way to satisfy human want at the smallest cost in human effort. And already it becomes manifest that any measures which hamper or debar the operation of such trade are retrograde measures, tending to turn us back on the path of progress, and to cause us to satisfy our wants at greater cost, or possibly not even to satisfy them at all. Keeping our attention fixed on the great "unit thought of all economic science-want and its supply-we recognise at once that the benefit of such trade as we are now considering lies in the imports, in the fact that by it we are enabled to obtain things for the satisfaction of our wants which we either should not otherwise be able to obtain at all, or to obtain them more cheaply than we could make them for ourselves.

But the real difficulty of the position has still to be met. Suppose that England can make both silk and calico better than France, and that we yet find a trade in existence whereby English calico is exchanged for French silk, how can this come to pass?

First, let us see exactly what we mean when we say that A can make a thing better than B. The statement may mean either of two things:-either that A, with a certain amount of labour-capitaleffort can produce a larger quantity or a better

quality of the thing; or that he can produce the same quantity and quality at a smaller cost in work and waiting. And if A is in this sense a better producer than B in respect of both of two commodities, it may still happen that his superiority is more marked with respect to one of them than is the case with the other. Of the two things he may be superior in both, but more superior in one than in the other. And in that case it may be to the advantage of both that A should make one of these articles for both, and B make the other. Let us see how this will work out.

Let us suppose that A can make either a hat or a pair of boots in 24 hours' work, and that B would take 48 hours to make the hat, and 36 hours to make the boots. B comes to A and says, "Please make two hats, one for yourself and one for me, and I will make two pairs of boots, one for you and one for myself, and then we will exchange. You will get your boots just as cheaply as you do now, since you cannot make a pair of boots in less than 24 hours, and by making a hat, also in 24 hours, you will get your boots at the same price in toil and trouble. Meanwhile I shall get from you, by working 36 hours at boots, a hat, which I cannot make for myself in less than 48 hours. But A will reply, "Your proposal does not offer me any advantage; for I shall still have to work 24 hours to get the boots, and in that time I can make them for myself; and I rather believe in my own make of boots." But B thinks it over, and presently turns up with an amended offer. He now says, "Look here, A; if you will make me a hat, which it will take you 24 hours to make, I will make you a pair of boots which it will take me 36 hours to make,

and in addition I will make you a pair of slippers, which I can do in 4 hours. In that way I shall get for 40 hours' work a hat which I could not make for myself under 48 hours, and you by working 24 hours will get not only the boots you could make in that time, but you will get a pair of slippers thrown in." And A admits that this seems a sensible proposal, and the bargain is concluded on these terms. And the result is that both are benefited; for A gets an additional want satisfied for the same labour, and B gets the same want satisfied for less. labour. A gains in increase of commodity, and B saves by diminution of labour.

Now this is just the way in which two persons of two different nations can come to trade, even though the advantage in both commodities, the materials of such trade, lies with one of them. In our example, A has an advantage of 24 hours over B in hats, and an advantage of 12 hours in boots; and the difference between the two advantages is 12 hours. And by the terms of the bargain this difference is shared between them, A gaining the product of four hours of footwear work by B, and B saving eight hours of the work he would otherwise have to devote to getting himself a hat. And just the same thing may be true if we suppose that England could make both calico and silk better than France, but that the superiority in calico were greater than the superiority in silk. It would then be to the advantage of both countries that England should make the calico for both, and that France should supply both countries with silk. And the trade once thus established, it becomes obvious that the French silk constitutes a demand for the English calico in England, and the English calico

constitutes a demand for French silk in France; for there is no buying without selling, and no selling without buying; and goods exchange for goods. The more the imports, the more the exports, and the more we buy the more men we can employ to make the things we consequently sell. And it is only by producing things that we can pay for the things we want, whether those things are made within the country, or brought to us from abroad in exchange for things made here.

We see here the advantage of unrestricted trade between different nations, and at the same time are enabled to put our finger on the precise error of any restrictions imposed on such a trade. If, for instance, England and Canada exchange clothing for food, the process amounts to this, that Canada clothes herself by dint of the unexhausted fertility of her corn lands, and England feeds herself by using the developed power of her factories. The recent war has unhappily thrown obstacles in the way of such a trade, with the result that the suit of clothes which used to cost the Canadian somewhere about five pounds, now costs him fifteen, and the four-pound loaf, which was sold in England before the war, for little more than 3d., is now only kept by a Government subsidy within the limits of 91d.; the subsidy meaning of course that the loaf really costs much more than the 9 d., the difference being made up out of the taxes of the country. Restrictions on foreign trade mean dearer commodities, that is, a smaller satisfaction of human want for any given amount of human effort. The principle upon which is based the defence of complete freedom of trade as between different nations never has been and probably never will be

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