31 MAY 1930, Page 19


[To the Editor of the SPECTATOR.]

SIR,—In your issue of May 24th, Mr. Wm. Muir has repeated the argument used both by Adam Smith and Abraham Lincoln to prove the advantage of Protection over Free Trade in providing employment. He shows in the example he gives that British employment may be increased by 25 per cent. He has, however, understated his case. In his com- parison the existing home trade may be omitted and his• example will then stand thus :—If goods to the value of

£100 are imported from the U.S.A., one class of British workers is involved, viz., those who consume and pay for the U.S.A. goods (£100). Total, £100. If these USA.- goods are excluded by tariffs, then two classes of British workers are *volved : (a) those who .produce the goods from the U.S.A. now excluded (2100), and (b) those who consume and pay for them (2100). Total,. £200.

The inference is that home trade ensures twice the amount of employment that foreign trade does. It is absolute folly, therefore, to admit into this country goods which we can ourselves produce and prohibitive tariffs will cure unem- ployment ; nor need we be perturbed at the resulting loss, if any, in our export trade.

Other countries will, of course, recognize this truth and will put prohibitive tariffs on British goods, for they .,will realize that it is positively harmful to import from- us articles which they can manufacture themselves. Our foreign trade, except perhaps with the tropics, will collapse like a pricked bubble.

- In assuming that the laws which govern foreign trade apply to domestic trade, we arrive at another startling con- clusion, viz., that interchange of goods between town and town is an economic evil. Take an, example : a Reading firm sends 2100 worth of furniture to London and purchases 2100 worth of London biscuits and cakes instead of buying them in Reading, which therefore loses employment to that extent ; similarly London loses £100 on the transaction.

The argument is known as the " Two Capital Fallacy.", Mr. Wm. Muir might read and reflect on Russell Rea's pamphlet on Imports and Unemployment which deals with the