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trade will, indeed, be less than it would have been, but the total trade and employment within this country will be greater, because it will contain the making both of the rails and of the other goods which the Glasgow workers will be able to demand as the result of the employment they receive. It is, of course, the familiar argument which Adam Smith adduced under the rather perverse title of "the Two Capitals," urging that there was a prima facie case for preferring internal to foreign trade, because both transactions in the process of exchanging goods against goods were kept inside the same political area. This argument will not, I think, hold water under ordinary trade conditions, in which the available productive power of a country may be considered to be fully employed. Under this condition it is evidently better to buy in the cheaper foreign market, for no total increase of employment will result from preferring the home-made goods. But where there is general unemployment both in this country and abroad, the immediate case for employing otherwise unemployed British capital and labour is far more plausible. "Yes, plausible, perhaps, but not sound," some free traders will certainly reply. A very able English exponent of free trade, the late Mr. Russell Rea, contended that the difference between foreign and internal trade, due to the difference of methods of payment, was such as to invalidate the statement that if the Glasgow rails were bought instead of the Belgian, the same demand for British labour to pay for them would take place. He insisted that the purchase of the Belgian rails stimulated a production of British export goods in payment, for which there would be no equivalent if the purchase of the rails were an act of internal trade. Now I am quite unable to admit that the foreign exchange, operating in one case and not in the other, alters the essential fact that the purchase of the rails enables and impels the recipients of the price to use their purchasing power to demand the production of other British goods. In the one case, the Belgian employers and workers who, otherwise, on our hypothesis of unemployment, would remain idle, will have a job and must spend the money they receive (or cause other Belgians to spend a corresponding sum) in a demand for British goods. In the other case, the Glasgow employers and workers, otherwise idle, will have the job and the money, and will spend it in demand for about the same amount of British goods. The