654: REPORT—1904. 
petition, the home entyeprenewrs can take full advantage of the inflation; prices 
mount vigorously only to fall as rapidly. With Free Trade there is less danger of 
a crisis, because there is less danger of a boom and over-production. 
As soon as in a Free Trade country prices rise above the ordinary level, foreign 
competition moderates them by import. The ‘inlet valve’ operates. Free Trade 
tends to prevent crises. 
(6) The higher the protective tariffs the greater the danger of acute and 
lasting crises. For in order to throw off the superfluous goods into other 
countries, a greater fall in prices is necessary. because of the high tariff the home 
prices can differ greatly during the time of inflation from those in the world- 
market. 
With Free Trade inflation and over-production can equally have place; but 
the home prices cannot differ much from those in the world-market, and as soon as 
reaction comes superfluous goods can be exported. The ‘outlet valve’ operates. 
Free Trade tends to mitigate crises. 
For these reasons, such countries as Free Trade England and Germany, with their 
moderate tariffs, were not subject to such violent industrial fluctuations as were the 
United States and Russia. ‘The inflation was less violent, thanks to the increase 
of imports that was induced; the reaction was less intense and less enduring, 
thanks to the accompanying increase of exports. 
The return of Protection to England would mean the return of crises. 
4. Economic Theory and Liscal Policy.' By Li. L. Price, IA. 
Sir Robert Giffen has recently declared that the ‘argument for Free Trade 
generally’ appears to be ‘complete both theoretically and experimentally,’ and 
Professor Smart has similarly observed that ‘Free Trade is the economist’s 
policy.’ These absolute statements do not accord with the impression produced 
on the mind of the writer of this paper by the recent literature of economic theory. 
THe would in any case deprecate the attempt to close discussion by an appeal to 
authority, but he would also question the correctness of the appeal in this 
particular instance. 
The large abstention of historical economists from the condemnation pronounced 
by their colleagues on Colonial preference possesses some significance; for the 
instinct and habit of the historian set him on his guard against the pretensions of 
a theory or the claim of a policy to universal applicability. A manifesto issued 
in August last made the writer of this paper hesitate whether it was worth while 
to pursue the theoretical inquiries with which for some years past he had been 
mainly occupied. Je was reassured by reflection, for he remained convinced that 
the theoretical argument for unqualified Free Trade was not ‘complete.’ ‘This 
position may be established both by an examination of the particular theories of 
international trade and value and also by the more general considerations to 
which the greater attention will be paid in this paper. 
Exclusive stress need not be laid on the argument that the fiscal policy of 
Free Trade is the surviving article of a general faith in daisser faire. It may be 
granted that Factory Legislation does not by itself justify interference with Free 
Trade. Ora broader, more convincing line of reasoning may be found in the dis- 
avowal of a universal rule and a resort to particular experience. Viewing the 
question from this standpoint, however, the reforming statesmen of the nineteenth 
century should be regarded as practical financiers primarily, and as economic theo- 
rists in a subordinate degree. Later experience seems to have shown that the 
simplification of the tariff was pushed beyond a point at which, with an increased 
expenditure, it can be retained ; and similarly, in their reaction from the Mercantile 
System, they may have carried further than their practical sagacity would now re- 
commend the principle of /aisser fate in trading matters, For the absence of any 
1 Published in the Heonomic Journal, September 1904. 
