134 COMMERCE AND EXCHANGE 



what it will prefer to import. But by far the larger part of foreign 

 trade moves along the lines of absolute advantage, combined as that 

 is, necessarily, with relative advantage. Our largest exports are of 

 those products in which we have an absolute advantage over all but 

 a few sections of the world, and our largest imports of those things we 

 can scarcely produce at all. It is probable that the theory of com- 

 parative cost received undue attention mainly because it is not 

 obvious at first reading and requires careful expounding and elaborate 

 illustrations for its demonstration. But that absolute advantage 

 rules wherever it occurs has always been recognized. 



The conflict between free trade and protection still continues with 

 unabated vigor, protection seeming to gain ground in practice. But 

 the chief features of this conflict are political, as they ever have 

 been, rather than economic, and the conditions have not been such as 

 to call forth any new arguments. The proposals of Mr. Chamberlain 

 and his party in England, and the possibility of tariff reform in the 

 United States, will be discussed in their practical aspects in the last 

 part of this paper. There are then no real changes to note in the 

 theory of international trade. 



The theory of foreign exchanges or international payments has 

 also, as has been said, remained essentially unchanged, but there 

 has been a notable attack made upon that part of the theory which 

 explains the international movement of money or bullion. The 

 older theory was that whenever an excess of bullion accumulates in 

 any country (or locality, for in this respect national boundaries 

 present no barriers) from any cause whatsoever, it tends to raise 

 prices and that country (or locality) becomes a good place to sell in 

 and a poor place to buy in, and thus the excess is drawn off. This 

 involves the acceptance of the quantity theory of money. Those 

 writers who have abandoned the quantity theory of money have 

 found themselves compelled to criticise this theory of the inter- 

 national movement of money. Their criticism has been supported 

 by two lines of argument. The first is that international prices are 

 fixed by telegraph and other means of rapid communication and can- 

 not differ from country to country even for a short time. They 

 further allege that there is no statistical evidence, when money 

 moves from one country to another, of such changes in the price level 

 as are required by the old theory. 



In all of this it appears to me these writers overlook the influence 

 of the discount rates in bringing about virtual changes in prices and, 

 above all, the fact that the rates of exchange are fluctuating con- 

 stantly. A change in the rate at which a man sells his bill is tanta- 

 mount to a change in the prices he receives for his goods. The 

 machinery by which foreign trade is governed is so delicate that a 

 very slight change will set it in motion. Those who criticise the older 



