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largely rests, would have come without protection; for our abundant natural resources could not be ignored; but a highly accelerated movement necessitated high prices, increasingly large quantities of cheap labor, and larger and larger aggregates of capital. Protection promised high prices; the open door to immigrants offered cheap labor: either would have sufficed. But to make assurance doubly sure we chose both. Protection, with other agents, has transformed resources into stupendous incomes, out of which large aggregates of capital have been saved and reinvested. Thus it has been an active factor in our "prosperity." It need not be said that, in view of changed conditions, its potency in the past is no guaranty that in future it can play an identical rôle.

But our social scheme has proved too complex for it to accomplish just the industrial effects it was intended to accomplish and no more. With complementary factors, it has induced a gigantic, clumsy, feverish development of manufacturing and mining; it has caused a headlong "lunge" in a particular direction. But it has induced the inevitable attendants of this growthurban life, city comforts, luxury, slums, poverty, and vice; greater concentration of wealth and more pronounced class differences; a medley of races and a babel of tongues; a clash of political and ethical systems; a vast array of bewildering problems. It has been responsible for development in ethics, politics, and social life, though it has been impotent to direct this development. It has made the attention to these aspects of social life more imperative than ever, though the "prosperity" which it has induced has served to delay our attention to the question of whether the older institutional system is adequate for the newer industrial life. In short, it has induced growth, faster than we have been able or willing to perfect means for controlling that growth. Its results, too, have been accompanied by prodigious waste. That its "good" is so conspicuous is due largely to our enjoyment of gains from the exploitation-the over-utilization—of our natural resources and our passing of the costs to succeeding generations.

Aside from the theoretical difficulties, the method of its use prevents protection from being an adequate means of social control. Since a legislative body is depended upon for tariff laws, we may well say, "Protection is all right in theory, but it will not work in practice." Did you ever hear of Congress, when considering a tariff bill, giving attention to the "end" to be reached, noting carefully the larger social as well as the purely industrial results of anticipated duties, carefully calculating gains against costs, and on this basis fixing duties for periods just long enough to secure the desired results? Or have you rather noted that, without attention to general principles and the relation of particular duties to these, a tariff bill is evolved through an aggregation of compromises between particular interests?

But the tariff is still our heritage. At present there is some disposition to treat it as a "moral issue" intimately connected with the fact of class and the distribution of income. There is a demand, perhaps waning but still strong, for a "scientific revision." This finds its source, partly in a protest against the way in which Congress draws a tariff bill, and partly in a superstitious reverence for whatever wears the label "scientific." Its weakness is that it fails to see that science can furnish only a mechanism, and that the nature of the tariff depends largely upon the theory underlying legislation. There is a cry for "freer trade" from manufacturers who believe that our industrial future lies "beyond the seas." And, of course, there is the perennial cry for higher duties and more of them. But, above all, there is reason for believing that the limitations of the tariff for good or bad are being more clearly seen, and that in the future it will be supplemented by other and more delicate instruments of control which together can impart to social life a more symmetrical development.

A. THE BASIS OF INTERNATIONAL TRADE

133. International Co-operation1

BY CHARLES GIDE

The advantages of international trade are not susceptible of arithmetical calculation. They are too complex for such simple methods, and are found on both the side of imports and that of exports.

The following are the advantages of importation:

I. Additional well-being is imparted by the imported goods which a country, because of its resources or climate, could not have produced within its own borders. For example, without international commerce, Holland could have no building stone, Switzerland no coal, England little lumber and no wine, France no copper, and the United States no tea or coffee.

II. Economy of labor is realized when wealth is imported that could be produced at home only at a higher cost than abroad. France could make good machinery, but it is more profitable to import it from the United States, which is better provided with coal, iron and facilities for manufacturing. To realize this advantage it is not necessary that the importing nation be inferior in the production of the good it receives from abroad. It may be to its advantage to import goods which it might produce under even more favorable conditions than the country which sends them. Cuba, for example, might be able to produce wheat more advantageously than the United States, but also to produce sugar even more advantageously. In this case it will be more profitable for Cuba to raise sugar and import wheat, despite her advantage over the United States in the production of wheat; for thus she can purchase through sugar wnat otherwise would have cost her more labor to produce. Thus it may happen that a country in all points superior to its neighbors will find it profitable to import goods from them.

An allied advantage is that whenever an accident of any sort unexpectedly reduces the productivity of one country, it may depend upon others to remedy this accident, which, in the absence of international commerce, might have disastrous consequences. Thus international commerce provides a kind of insurance against famines. and against the severe stress of national panics and depressions.

Although a nation could perhaps produce a sufficient quantity of many commodities which at present it imports, the quantity at

1Adapted from Principles of Political Economy, 2d American ed., 303307. Translated by C. William A. Veditz. Copyright by D. C. Heath & Co. (1903).

home could be increased only at a very great cost in labor and capital and a consequent increase in prices. The United States, for example, imports a large quantity of lead. If imports were cut off, it would be necessary to work poorer mines, and incur the necessarily greater costs, which, in higher prices, will obviously fall upon the consumers of lead.

As for exportation, the following are its advantages:

I. It utilizes natural resources and productive forces which, if there were no foreign outlet, would be superabundant, and therefore partially useless. Were it not for exportation, Peru would not know what to do with her nitrates, Australia with her wool, Spain with her wines, Pennsylvania with her iron and steel, nor the South with its cotton.

II. It develops a nation's industry. It is well known that the extent of the division of labor and the progress of large-scale production are proportionate to the size of the market. Division of labor cannot be at all detailed when the market is small, whereas with every extension of the market a more elaborate division of labor and the introduction of more expensive but in the long run more productive processes and machinery becomes possible. International trade, by creating world-wide markets for goods, tends to develop the division of labor; it leads to a fuller utilization of the possibilities of the soil and the population, to a completer development of acquired aptitudes, and hence to a great increase of the productive energy of humanity. England could never have become the great manufacturing nation it now is, did it not export to all parts of the world. The possession of an extensive market made it possible for her to make immediate and profitable use of the latest inventions and improvements in manufacturing.

134. The Law of Comparative Costs2

BY FRED M. TAYLOR

Here is a lawyer who very likely can mow his lawn, cultivate his garden, and take care of his furnace much better than the persons whom he hires to do these things. But what he does is to devote himself to his profession, and buy the services named from other people; and of course he acts wisely in so doing. It is clear that he gains most by devoting himself to the thing for which he is best fitted. He is not interested in the fitness or unfitness of his neighbor as compared with himself, but rather in the superiority of

"Adapted from Principles of Economics, 2d ed., 75-77. Copyright by the author. Published by the University of Michigan (1913).

his own fitness in one line as compared with his fitness in another line. So long as he can find a market for his output, it is better for him to devote his time to doing the things for which he is preeminently fitted, and get his supplies of other things from his neighbors, even though he can make those other things better than they.

It is evident that in this respect the case of the community or the nation is like that of the individual. The upper peninsula of Michigan produces little but copper and iron, getting most other goods through exchange with other communities. Yet it would be easy to prove that this section is really better fitted to produce some of the things which it buys than the sections from which it buys them. The explanation is to be found in what has long been known as the Law of Comparative Costs. It may be stated as follows:

.

Ignoring cost of transportation, two communities find it profitable to specialize respectively in the production of two commodities and to exchange those commodities each for the other, provided the comparative real costs of the two commodities in one community are different from their comparative real costs in the other community.

Let us illustrate. Letting labor represent all real costs, suppose that in England the cost of a ton of iron is 25 days' labor and the cost of a yard of broadcloth is 5 days' labor; while in America the cost of iron is 16 days' labor and that of broadcloth 4 days' labor. These costs may be expressed in the following proportions:

Eng. cost Iron: Eng. cost Cloth:: 25:5

Amer. cost Iron: Amer. cost Cloth:: 16:4

Since in England a ton of iron costs five times as much as a yard of cloth, it will naturally tend to be worth the same as five yards of cloth; under which conditions England can afford to give iron for cloth if, and only if, she can get more than five yards per ton; or trade cloth for iron if, and only if, she can get it with less than five yards per ton. In America, on the other hand, a ton of iron. tends to be worth four yards of cloth; under which conditions America can afford to trade iron for cloth if, and only if, she can get more than four yards per ton; or to trade cloth for iron if, and only if, she can get it with less than four yards. But the first hypothesis for England and the second for America are plainly shut out. England cannot get more than five yards of cloth for iron, since in America it is worth only four yards. So America cannot buy with less. than four yards of cloth since it is worth five yards in England. On the other hand, the second hypothesis for England and the first for America fit each other perfectly. England can get iron for less than five yards, since it is worth only four in America; and America can

sell iron for more than four yards of cloth, since it is worth five in England. Accordingly, under the conditions supposed, an exchange of English cloth for American iron would be profitable.

It goes without saying that if one nation is absolutely inferior to its neighbor in respect to the production of one commodity and absolutely superior in respect to the production of another, then, obviously, the comparative costs of these commodities in one country are different from their comparative costs in the other, and so exchanging them will pay.

But, as the argument above has shown, it is equally clear that if a nation is absolutely superior to another in the production of each of two commodities, it will produce the one in which its superiority is the greater, and will import the latter. Likewise, if a nation is inferior to its neighbor in each of two commodities, it will produce the one in which its inferiority is less, and import the other.

135. The Theory of Free Trade

The theory of free trade is nothing else than a deduction from the advantages of foreign trade, or rather, of trade. The industrial policy of a people is concerned, not with the welfare of classes or the productive profits of particular individuals, but with securing for the people as a whole from the limited social resources at their command the largest amount of material wealth. This involves a problem of economic organization. This problem can be solved in two ways, logically antithetical, as well as in innumerable intermediate ways which combine the two primary solutions.

The one is the resolution of the economic world into a large number of infinitely small districts. In each district there is a body of people, a fund of accumulated capital, and land possessed of definite productive powers. The people, capital, and products of each district are to be kept clearly within the confines of the district. Commercial intercourse and personal movement from district to district are to be prohibited. Thus each district is called upon to solve its own problem in economic organization. It must directly satisfy the wants of its own people; to that end it is compelled to make the best possible accommodation of its labor and capital to its natural resources. It need not be said that under such a system of small selfsufficient units, few wants could be satisfied; little capital could be accumulated; the advantages of specialization would be lost; little natural skill could be developed; and only limited potentialities of the natural resources could be utilized.

The alternative is the treatment of the economic world as a single industrial unit. Population and capital are to be allowed

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