is here to-day and gone to-morrow as profit calls, and the fixed capital wastes away, unless it can be replaced with a profit. Profit or no profit the proletariate will increase, but unless the capital can be retained at a profit the labour cannot find employment. Accordingly it may be maintained that in order to increase "the aggregate satisfaction" of the community capital ought to be induced to stay-for a consideration.

Such a consideration might take one of two forms; a bounty or a protective duty.

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"I love to see the tall chimneys smoke" is still the best apology for a bounty. It is true that a bounty can only be raised by taxation. If, however, the taxation is levied on the richer classes, the aggregate satisfaction" is increased by making some of their superfluous wealth wander, state-directed, to the poor. And it may be argued that on this plan the poor are twice blessed; for the wealth diverted instead of giving a small relief to a small number of unemployed causes capital to stay in the country and to give employment at fair wages to a far greater number.

A protective duty by the exclusion of foreign competition enables the home producers to raise their prices, and in that way their profit. The protective duty is equivalent to a bounty obtained by the taxation of the consumer. If the consumers are relatively wealthy and the producers relatively poor, there is again an increase of the "aggregate satisfaction" and a double blessing of the poor.

If the articles protected (and raised in price) are consumed by the poor, in effect they themselves pay the bounty which bribes capital to stay. But on the theory of "aggregate satisfaction" the payment may be to their advantage, because even in this case they gain the employment; it is as if they paid something by way of insurance against unemployment.

It may be contended that the same result might be obtained by a natural fall in the wages of the industry affected by the foreign competition. But such a fall might be prevented by the action of trade unions; and in any case to be permanent it must be part of a general fall, i.e. particular wages are adjusted to the general level.

§ 10. Protection and Socialism.

It follows from the argument of the last two sections that protection logically carried out leads to socialism. Socialism is a term of vague import, but for the present purpose it may be taken to mean the control of the capital and labour by the state. If the state intervenes, under present conditions, to give artificial profit to some favoured industry on the ground that it will give advantageous employment to labour, surely it may be said that the state ought to see that the industry selected is the best, and that the ultimate object is secured. The people of the United States are in many respects, owing to a variety of causes, the least socialistic of modern nations, and yet the cry that the nation ought to own the trusts is quite popular, and will only be

stilled if some effective means of control is invented. The national ownership of the trusts is described as the natural result of evolutionary socialism. The experience of continental nations is equally apposite. Socialism is much more widely prevalent in protectionist countries than in the United Kingdom. And the reason is that the monopoly of capital is more obvious and is apparently more detrimental to labour.

If the ideal of socialism is once approved it may be approached by other avenues. The method of aiding the poor by first raising the profits of the rich does not appeal to the average socialist; his method is direct taxation and direct management of land and the instruments of production; he would gladly show the protectionist a more excellent way if the employment of the poor is the goal.

Adam Smith, however, considered the question of protection from the point of view of a society in which capital is owned and managed by individuals who are guided by profit and not by ideas of promoting the "aggregate satisfaction." And society is still so constituted that if we wish to be practical we must follow his example.

CHAPTER VIII

PROTECTION TO NATIVE INDUSTRIES

§ 1. Difficulty of the greater Advantage of Employment of Capital in Home Trade.

In dealing with "protection to native industries," in the sense of "restraints upon importation from foreign countries of such goods as can be produced at home,” Adam Smith has to meet the difficulty that on his view capital employed in home industries or in home trade is prima facie more advantageously employed than when devoted to any kind of foreign trade or investment that is to say, with his usual proviso, "upon equal or nearly equal profits."

If capital is employed in some home industry that has reached the limits of expansion imposed by the demand in the home market, it is advantageous that an export trade should be developed so that the industry may be conducted on a larger and more economical scale, and also by natural expansion give additional employment to home labour. The surplus is exported and exchanged for something for which there is a demand.

In this case the country employs more capital at home so far as that particular industry is concerned,

and any growth of the export trade under the conditions assumed, gives, in general, more employment to home labour and capital.1

§ 2. Possible Displacement of Home Industries by Foreign Imports.

But when we consider imports made into a country it does not follow on Adam Smith's principles that the expansion of the import trade will necessarily mean a corresponding increase in home industry. It is quite possible that the new import may displace the product of some old industry instead of being exchanged against a surplus that would naturally be exported.

Suppose, for example, that before the trade is opened, a million pounds worth of English manufactures were exchanged against a million pounds worth of English corn. If a million pounds worth of corn are now imported (at a cheaper rate per unit), the English manufactures formerly given in exchange to the English producers of corn will now be given to the foreigner.

In this case it is not the surplus of an expanding manufacture that is exchanged for foreign goods that cannot be produced at home. On the contrary, a foreign trade displaces a home trade. And the immediate effect on Adam Smith's views is a disadvantage.

That the immediate effect would be a disadvantage (measured by the test of the employment

1 See Chapter VII.