ns governing international trade and a closer analysis
of "increasing returns." "Increasing returns" in any place are a
function of two variables, (1) the magnitude of the world market under
conditions of world commerce, and (2) the magnitude of the industry in
the spot in question. The economies connected with the first variable,
which in such an industry as the cotton industry are enormous, and
govern ultimately the limits of business specialism, are shared by every
national section of the industry whether it be great or small. If Haiti
started a cotton factory she might import all her specialized
machinery--the specialism involved in producing which is dependent upon
the exportation of some of it--and restrict narrowly the work undertaken
by her one factory. The cotton goods outside this range she would still
import, and if her specialized product were in excess of local demand
she could export some of it, if she were favourably placed in respect of
cost of carriage, for cost of production in Haiti would not be
impossibly high, since machinery and the general system of production
would be quite up to date though labour might be highly inefficient. Of
course, the country with a large industry enjoys high local economies,
and it might be thought that these alone would be a menace to the
stability of the small industry, because if the industry in the favoured
locality increased these would increase also and the small industry
would be undersold. The answer to this difficulty is that foreign trade
depends upon ratios between ratios, that is, upon the ratios between the
costs of production of all the products of each country in relation to
similar ratios for other countries. Relatively, therefore, diminishing
returns operate in every country. In every country there must come a
time, the utility of commodities being taken into account, when a unit
of labour and capital provides less utility when applied to the creation
of cotton goods, say, than when applied to producing something else for
home consumption or for export in exchange for commodities wanted at
home. It becomes apparent, therefore, that cotton industries of widely
varying sizes dispersed throughout the world can settle into relations
of perfectly stable equilibrium, as that term is understood by the
economist. Slow changes, of course, in their relative volumes might be
looked for with changes in a mutable world, but very sudden collapses
would be impossible unle