postponing buying as far as possible, etc. After a time all the old stocks are used up and, as there is no opportunity for further postponement, buying becomes normal again. It is fortunate if the prices do not start violently upward again, thus starting another cycle.

These two tendencies-to accelerate buying when prices are believed to be rising from a low to a high level and to retard buying when they are believed to be falling from a high to a low level-not only affect consumers but dealers as well. Altogether they help to account for those periods of feverish prosperity and chilly depression which are so noticeable in modern times. They seem to be a necessary accompaniment of any system of free buying and selling. At least, no one has ever suggested a method of preventing their recurrence without stopping the processes of free buying and selling and substituting some sort of rationing process under which production and distribution would be carried on under a system of authority and obedience rather than under the system of free bargaining.

Let it not be too hastily assumed that there is no way of preventing these recurring business depressions. There is a remedy for every economic evil. The only question is whether we are willing to pay the cost of the remedy. In other words, the question is whether the evil to be remedied is great enough to justify the cost of the remedy. There are a great many things in the world that ought to be reformed, from spelling up to clothes, but most of them are not important enough to justify the trouble it would take to reform them. We must first decide whether these recurring cycles of trade with their business depressions are worth reforming. Nothing should be taken for granted without careful investigation. It is not impossible that more progress is made over long periods of time under these cycles of rapidly increasing business activity, rising prices, and general prosperity, followed by decreasing business activity, falling prices, and general depression,

than we should have with constant business activity, stable prices, and uniform prosperity.

Let us begin with one or two analogies, which, of course, do not prove anything, though they may suggest possible conclusions. Probably every farmer in the temperate zone would say, if asked suddenly, that it would be a good thing if the cycle of the seasons could be eliminated so that we could have summer all the time. It doubtless seems unfortunate that there should be a winter season when no plants grow and when live stock have to be fed with stored-up hay and grain. And yet if he observes widely he will find that the greatest agricultural prosperity and progress are seen in precisely those zones where the cycle of rapid plant growth followed by a dormant period is most marked. Not only do the forces of plant growth seem to work with a new vigor after the winter's torpor but man himself seems to take hold of the spring work with a zeal and enthusiasm that would be difficult to maintain the year round if there were no seasons. Again, when one is out in the woods, one is not usually worried lest a tree or a branch should fall on him, in spite of the fact that he sees all around him evidence that trees and branches have fallen. One reason is that all the trees and branches that were weak and ready to fall were blown down in the last storm. Those which weathered that storm are not likely to fall until the next one. It is not impossible that a large part of what we call business confidence, on which so much of our business prosperity depends, is due to the fact that all the important business houses and financial institutions that were weak enough to fail were eliminated in the last depression. Those which weathered that crisis are not likely to fail now nor until they develop weakness or unsoundness, which will be tested by the next crisis. Meanwhile we have enough confidence in the general economic conditions to justify us in starting new enterprises. This tends to unusually active business and the development of many new enterprises which, in turn, call for another testing period later on. This may so increase

the effectiveness of the general process of trial and error, variation and selection, wholesale experimentation and severe testing (which is the only method by which progress comes in any field), as to give us more progress in the long run than we should have if things ran along at a uniform rate. In short, until we are more certain than we can now possibly be that it is desirable to eliminate economic crises, we would probably do well not to dabble too much with remedies. Nevertheless remedies may be applied if we care to pay the cost of them.

Periods of depression are assumed to impose special hardships on laborers. Yet it is an observed fact that wages rise during a period of special business activity and that it is very difficult to reduce them during periods of depression. Though there may be some reduction they seldom go back to the old level. The process of forcing wages up during periods of expansion and holding them up during periods of contraction probably does more for labor in the long run than could be done if there were no periods of special expansion and contraction.

In the chapter on The Purchasing Power of Money it was pointed out that prices could be stabilized by several methods. This would, in itself, go a long way toward stabilizing business. Few things so stimulate business activity as rising prices, though rising prices and abnormal business activity are generally joint results of active buying. To prevent prices from rising would have a dampening effect on business expansion. Falling prices, on the contrary, discourage business activity. To prevent their falling would remove the discouragement. When prices rise because of abnormally active buying by consumers, the most effective way to prevent their rising is to retard buying; when they fall because of slow buying by consumers, the most effective way to prevent their falling is to stimulate buying.

CHAPTER XXXI

FREE TRADE

Advantages of exchange among individuals of the same country. Freedom of exchange between individuals is so clearly advantageous that practically no one advocates serious restrictions upon it. Freedom of trade between different sections of the same country also is generally approved. It would seem absurd for the South, which is peculiarly adapted to cotton, to try to be entirely self-supporting and, especially, to produce certain things, such as wheat, for which its soil and climate are not so well suited as are those of other sections of the country. No one would seriously advocate an interference with the shipments of wheat and wheat flour to the South or of cotton to the North.

Advantages of exchange among individuals of different countries. It is argued by a large majority of the students of economics that the same arguments which favor a policy of freedom of exchange within the country are equally in favor of freedom of exchange between different countries. The lines which separate one country from another are frequently arbitrary political boundaries and do not necessarily interfere with the channels of advantageous commerce. These students would hold that there is no more reason why there should be an interference with freedom of trade across the St. Lawrence and the Great Lakes than across the Ohio River or the Mississippi. If there are individuals in Canada who desire products from the United States, and individuals in the United States who desire products from Canada, there is no more reason why they should be forbidden to make the exchange than there is why two citizens from different states of the United States should be forbidden to exchange their products.

The diversion of labor and capital from the more productive into the less productive industries. The positive argument in favor of freedom of trade rests upon one or two fundamental propositions. One of these is that the labor and capital of any region tend of themselves to seek those opportunities and to develop those industries which are most profitable to themselves. From this it would follow that any interference with this process, or any attempt to develop an industry in a region where it would not develop without special favors, must necessarily be a mistake. It would merely divert labor and capital from the more productive to the less productive industry. Left to themselves, labor and capital in the southern part of the United States will go into the growing of cotton without any governmental encouragement. This is a sign that cottongrowing is one of the most productive opportunities of that region. Any attempt to tax cotton-growing, and out of the proceeds to pay a bounty to some other industry, would mean merely that a certain amount of the labor and capital of the South would be diverted from the cotton industry, in which it is most productive, into an industry in which it would be less productive. If the new industry is not less productive, labor and capital would go into it anyway; if it is less productive, it would be a waste of resources to divert labor and capital into it instead of allowing them to go where they would naturally go. Against this fundamental proposition of the free-trade school the protectionists have never been able to launch a successful frontal attack. They have, however, attacked the policy of free trade at other points. The arguments which they have been able to use have, on the whole, proved somewhat more popular than this severely simple doctrine on which is based the free-trade argument. There are six popular arguments in favor of protection, besides some others that are not so popular, though perhaps of greater scientific weight. These six arguments may be characterized as follows: (1) the balance-oftrade argument; (2) the home-market argument; (3) the infant-industries argument; (4) the standard-of-living argu