than that at which she could herself produce them, although to the exporting nation they may have cost more. Though it may appear paradoxical, it is nevertheless true that it may be to a country's interest to import goods which she could herself actually produce with less cost than the exporting country, for she obtains them at still smaller cost by exchanging for them goods for the production of which she has a still greater advantage. The cost to her is not the amount of labour and capital actually spent in the foreign country on producing the goods, nor even what would be required for herself to produce the same goods, but the still smaller amount spent on producing the goods which are exchanged for them. The reason that one country gains by trading with others is not that other nations produce at less cost than itself, but lies in the differences in the characters of the capabilities of the various nations.

A nation may be very wealthy and still exchange little comparatively by way of foreign trade. The United States, e.g., is amongst the wealthiest nations in the world, whether its wealth be measured absolutely or relatively to population; but relatively to population its foreign trade is amongst the smallest, being only about £7 per head, while that of New Zealand is about £33. From what we have briefly considered above, it would appear that foreign trade will tend to be large if a nation has some great special advantages, or even special disadvantages, in the production of some goods, or in the supply of some services. A special advantage will lead the nation to export the goods produced with this special advantage and purchase others for the production of which she is not so well fitted; a special disadvantage will lead her to purchase the goods she can only herself produce at such disadvantage and pay for them by exporting those for the production of which she is better fitted. We may say that causes producing a great differentiation in national productive powers tend largely to promote foreign trade. Now, the most general and at the same time most considerable causes affecting the relative powers of production in various branches of industry are the relation of population to land and the magnitude of the community or of the national estate.

The first of these is the relation of labour to land. If the population is small compared with the area of good land, even though there may be abundance of coal and water-power, the nation will have a great relative advantage, not in manufacture, but in the production of food and raw materials. Australasia, Canada, and Argentine export foodstuffs, minerals, and other raw materials, and import manufactured goods. Even the

United States, with its much greater relative population and stringent tariffs, though exceptional resources in the way of coal and iron has given it a great advantage in the production and manufacture of iron and steel, remains to this day predominantly a producer of food and raw materials. If the population of a country, on the other hand, is large compared with the area of good land, the nation is at a great disadvantage in the producing of food and many raw materials in sufficient quantity for the needs of its large population. Unless it is equally handicapped in other directions, it will take up other pursuits, and import food and raw materials in return for manufactured goods, or for services rendered such as England renders by and in connection with her great carrying trade. The great and numerous advantages for manufacture and commerce possessed by Britain brought it about that as population increased it was much easier for her than for her rivals to turn for the support of her growing population from the pursuit of more and more intensive culture of the land to manufactures and commercial pursuits. Consequently she started earlier on her great manufacturing and commercial career than other nations; but some of these are now at last, by reason of the continued growth of their populations, being forced in the same direction. If, however, there be in any country little source of power, or such can be obtained only at great cost, the nation may be forced by increasing population rather to a more intensive cultivation of the soil than to manufactures; and a very intensive system of cultivation may have to be reached, calling strongly into action the law of diminishing returns, and leading to a greatly diminished prosperity of the people, before the point is reached at which its labour and capital can be more economically utilised in the development of manufactures.

Smallness of population or of territory is the second of the two general causes we are considering which promotes great specialisation of national industry by a great differentiation in the national productive powers. The smaller the resources the more restricted generally will be the variety of occupations in which the population can engage with advantage, partly through diminished variety in the resources themselves, and partly by the smaller field for the division of labour. The variety of resources of the United States we cannot expect and do not get in the much smaller area of, say, Holland. But a nation may not be exceptionally small in respect to its territory or resources, and yet may be unable, by reason of the smallness of its population, to engage with advantage largely in a variety of industries. A small community is not suited to a high development of the division of labour. Our own Dominion

comes within this class. We have resources in great variety, but the absolute smallness of its population aids the influence of its smallness relatively to the extent of the land of the Dominion, in constraining a one-sided development of industry in the direction of mining, agriculture, and pastoral pursuits.

According to this argument it is in the case of nations that have either sparse or very dense populations that we should find generally the greatest foreign trades relatively to population; and of these generally the most conspicuous should be the smallest populations in the former class and the smallest countries in the latter. Table I refers to countries of sparse populations producing an excess of food and raw materials. The statistics are mostly quoted for the year 1904, and the countries are arranged in the order of magnitude of the foreign trade per head of population.

[The section below cannot be correctly rendered as it contains complex formatting. See the image of the page for a more accurate rendering.]

It will be noticed here that the trade per head is less for Australia as a whole than for any of the separate States. This is because much of the trade of each State is with the other States; this counts as foreign trade for each separate State, but is omitted as internal trade from the foreign trade of the whole. This further illustrates why the trade per head is largely influenced by the size of the community. The larger the community the greater tends to be the proportion of its total trade which is merely internal trade.

Table II refers similarly to a number of countries of dense population in which the import of food and raw materials exceeds the exports.

That the opening of the Panama Canal will result in the diversion of the routes of a considerable portion of the world's trade, and will bring some portions of the earth into much closer commercial relations, goes without saying. But it will not have the same proportional effect on the world's trade as a whole as did the opening of the Suez Canal, which greatly shortened all the voyages between the East, including Australia, and the West, including the east coast of North America. The Panama Canal will not shorten the distance between Europe and Australia or the East generally. It will not even make the voyage from New York to China shorter than is that from England by the Suez Canal, and it will make it only slightly shorter than the voyage from New York itself via Suez. The Suez Canal must continue almost to monopolize the trade of Europe with Asia. Australasia will not be benefited to any extent beyond the shortening of the distance to the eastern ports of the United States. This, no doubt, will tend to encourage trade with the United States; but as regards trade with Europe, Australia will not be appreciably better off than she is now with the Suez Canal. The Panama route will only shorten the distance from Auckland in New Zealand to Plymouth or London by something less than thirteen hundred miles as compared with the route round Cape Horn—i.e., by about 10 per cent. This is only about three or four days' sail for the modern ship. As against this advantage, there will be the slow and expensive progress through the canal and its locks, and the disadvantage of there being no great ports of call on the new route. The present route round Cape Horn enables boats to call at the great and rapidly growing ports of the eastern coast of South America, including Buenos Ayres, with its population of over a million.

On the other hand, the United States will get a much shorter way of water-communication between its east and west coasts. There will also be shorter communication between Europe and the west coasts of the Americas. But the commercial importance of the west coasts will never be comparable with that of the east coast: its mountainous formation, and the arid character of so much of the country beyond, is very different from the rich plains and great river systems of the east coast. As regards, then, the commerce of Europe in general, or of England in particular, it is a mistake to think that the opening of the Panama Canal will be in any way of the nature of a revolutionary event.

Looking now at phenomena rather than at causes or influences, we may remark that in the struggle for foreign trade no feature has attracted more attention than the rapidly increasing foreign trade of Germany. It has been made a persistent argument for a revolution in British fiscal policy.

We shall now be able to appreciate the real force mainly responsible for producing this rapid expansion, and to see how helpless is Germany's own fiscal policy, or those of other nations, to arrest, though they may impede, its progress. The soil of Germany is cultivated to the utmost degree, and is devoted mostly to the growing of food, and only to a comparatively small extent to the growing of raw material for manufacture. With an area only some 70 per cent. greater than the United Kingdom, she has four times the number of persons engaged in agriculture. In spite of this, she now fails even to feed by any means the whole of her population. For a large portion of her food-supply and for a much greater portion of her raw materials she is dependent on other and younger nations. The change which has been taking place is illustrated by the great diminution in the flocks of sheep. In the twenty-one years from 1873 to 1904 the sheep of the Kingdom of Prussia declined from 19,670,000 to 5,650,000, and those of the whole of Germany from 25,000,000 to 9,690,000. Pasture has been giving place to intensive culture of the land; but, notwithstanding this, Germany fails now to supply the whole of the food of her people. In 1905 the value of her import of wheat was no less than £16,470,000. The magnitude of her imports of raw materials is sufficiently indicated by the values of her imports of wool and cotton in the same year. Raw wool she imported to the value of £16,360,000; woollen yarn, to the extent of another £4,670,000; and cotton cost her £19,910,000. The census of the same year showed an increase in population during the quinquennial period of 4,087,277. This represents an annual increase of population almost equal to the total population of New Zealand, and the area of Germany is only double that of New Zealand. This increase in population is considerably more than double that of the United Kingdom. If the same rate of increase were continued, the population of Germany would double in some forty-five years.

Now, this growing population has to be supplied with food and raw materials, and it can only be done by the export of manufactures or the rendering of other services. For progress in manufacture she has many advantages. List perceived it long ago. In the year 1844 he was able to write, “If any nation whatever is qualified for the establishment of a national manufacturing power it is Germany; by the high rank which she maintains in science and art, in literature and education, in public administration, and in institutions of public utility; by her morality and religious character, her industry and domestic economy; by her perseverance and steadfastness in business occupations, as also by her spirit of invention; by the number

and vigour of her population; by the extent and nature of her territory, and especially by her highly advanced agriculture and her physical, social, and mental resources.” Germany has large supplies of both coal and iron, and certainly the quality of her people is second to none. She is surrounded by some of the wealthiest nations of Europe, and can exchange products with them by rail without breaking of bulk and frequent handling. The progress in European railway-communication and the tunnelling of the mountains have given Germany an advantage in markets in which she was formerly handicapped. It was, then, inevitable that Germany should have utilised these advantages to obtain food for her people, and become a predominantly manufacturing nation earlier than she would have done had her advantages for such a career been less pronounced. Her foreign trade has to struggle against her own restrictive policy. She taxes imported food, and imports cannot be restricted without restricting exports. But the influence of the German tariff pales before that of the growth of population. German foreign trade flourishes in spite of the policy of German statesmen, and the author of the victory is the German mother. The declining birth-rate has affected Germany less than most countries, while she feels with most others the operation of the diminished death-rate, due to improved sanitation, the progress of medical science, and the improvement in the general knowledge of the laws of health.

As the great increase in population has produced in the past such a rapid increase in German foreign trade, so it is sure to produce the same effect in the future. Even an exceptional fall in the German birth-rate would not materially affect the progress of German commerce for many years to come. The high birth-rate of the last fifteen years is only now about to increase the effective labour force of the country. Even if there were to be no increase in the annual number of births, though this would involve a rapidly falling birth-rate, the population would continue to increase rapidly, for the present annual number of births is sufficient to raise the population to some 110,000,000. The increase in the labour force of Germany during the next twenty years will be enormous. It will be largely directed to manufacture, and it will want food and raw material—very much food and still more raw material; for it should be noted that in the case of an increasing population that already requires more of these commodities than its land produces, not only is food and raw material required for the consumption of the accessions to its population, but still more raw material on which to bestow the labour of manufacturing, which is to purchase the former. An excess of raw materials must be imported

over and above what is required for consumption, to be re-exported in a manufactured form, and with an increased value making it sufficient to pay for the whole. Unless Germany is to obtain much of her supply of food and raw materials in return for services of shipping, or as interest on increasing capital invested abroad, as in the case of England, the amount of manufacturing in Germany will increase far more rapidly than her population, and the export of manufactures more rapidly than the total amount of manufactures. It cannot be many years before the volume of German trade will pass that of England. Germany is rapidly assuming a position of equal dependence with England on imported food and raw material. Probably the addition of twenty millions to her population would produce an equal proportional dependence, and at the present rate of increase she will acquire this additional population in a little over twenty years. When Germany has reached that stage of like economic condition, if not before, her total trade will greatly exceed that of England, by reason of her much greater population, which will be sufficient to outweigh any advantages which may tend to produce a greater British trade. And with German trade will grow naturally and inevitably the German navy.

When we reflect now that, although the most conspicuous instance, still Germany is only an example of what is taking place over a great part of Europe, one is inclined to question from this point of view the wisdom on our part of a policy that would tend to throw away these rapidly growing markets in favour of one. In the period 1901–3 we have the following excess of births over deaths per hundred of population in various countries of Europe: Germany, 1.49; Austria, 1.25; Hungary, 1.16; Belgium, 1.13; Holland, 1.55; Italy, 1.04; Norway, 1.50; Sweden, 1.08. The smallest of these rates of increase would lead, apart from emigration, to a doubling of the population in sixty-seven years; and these countries as a whole are already dependent on an excess of imports of food and raw materials.

People generally in this country do not realise the importance of the growing general European market, because the figures in the Official Year-book are so illusive. We read there, for instance, that in 1905 we imported from Germany goods to the amount of £277,467, and exported to Germany to the amount only of £38,958. This, no doubt, is true; but the great volume of goods that pass from here to Germany through the English market is ignored. It will be a revelation to many to realise how great this volume is. The estimate of Mr. W. de Haas, Commercial Attaché to the Imperial German Consulate-General

in Sydney, is that Germany really takes from New Zealand goods to the value of £750,000 yearly, the wool alone amounting to £500,000. So great is this trade between Germany and these colonies becoming that it is unlikely to continue much longer to pass so largely through the English market; the goods will be carried more and more direct to Germany, and much of it in German vessels. Again, the import of butter into Germany in 1904 reached 34,340 metric tons, and was of the value of £3,000,000. It had considerably more than doubled in two years. Russia and the Netherlands each sent butter to the value of about £1,000,000. It is a good thing to have a choice of markets, and it is worthy of consideration whether New Zealand would not be doing better to cultivate the rapidly growing continental European markets instead of pursuing a policy tending in the direction of confining her trade to the Home market.

As Germany is the leading example of a striking tendency in Europe, so in the East we find Japan the leader of an important movement in Asia. The country has attracted the attention of the world by reason of its rapid development in many ways. She does not yet cut a great figure commercially in the world, for in 1905, even after some years of rapid increase, her trade was less than £83,000,000. But even this represents a striking change and a great advance upon small beginnings. It is the rapidity of this advance and the great possibilities of future progress that arrest one's attention. In Japan, China, and India there has long been present one important condition favourable to an extensive commerce in the density of the populations of those countries. But it is only recently that Japan's pursuit of western knowledge, adoption of western methods, and willingness to trade with other nations has given play to this influence, and the world to-day stands expectant of a further remarkable industrial development in Japan. In China we have a great population, of great density, with resources of the richest, including one of the largest coalfields of the world. The Press has informed us at intervals recently of the many ways in which she is freeing herself of the shackles of her traditions. Amongst social reforms in progress are the suppression of opium-smoking, the removing of racial distinctions between the Chinese and Manchus, the permission to daughters of upper-class Chinese to marry into the Imperial family, and the abolition of the binding of the feet of females. We have, further, such political and economic forms as the forming of a Government Council, intended to be the nucleus of a regular Parliament, the adoption of uniform weights and measures throughout the country, and the adoption of the gold standard. Chinese students are going

the race for wealth and population? They will be supplying food and raw material for manufacture to these others. The welfare of the people need not necessarily suffer on that account, as it certainly does not at the present time. Only if it be thought essential for the nation to grow out of an agricultural state and achieve eminence in manufactures, thus increasing in population and aggregate wealth to an extent that would not be otherwise possible, need the prospects of this time be contemplated with any anxiety. It is true we have previously spoken of the growth that has been achieved in some cases, and is likely soon to be achieved in others, as the result of developing manufactures for export, as of a phenomenon by no means remarkable, but the natural result of present conditions. But in the days to which we refer, when so vast a proportion of the world's population will be living on land totally inadequate to providing them with the necessary food and raw material, and will be exporting manufactures for the food and raw materials of the remainder, the world will move more slowly. England, the first nation to attain to great manufacturing pre-eminence, was able to feed her people from the new world and pay with her manufactures. Germany, coming next, found the world wanting more manufactures than England could supply, and found it easy to follow in her footsteps. But no such easy path can lie before Canada, Australia, Argentina, or New Zealand. Even when these countries reach the stage when their further development will require the exporting of manufactures for food and raw material, there will no doubt be then, as probably always, parts of the earth whose want of power, climate, and other circumstances will prevent their ever assuming the manufacturing state. Such parts must export food and raw materials; but these exports will be required by the nations that will then have become the great manufacturing nations. New Zealand and the other countries at about the same stage of development will have to compete with these in the effort to change themselves from agricultural to manufacturing nations. If it be still possible for any of these younger nations to urge forward and attain the manufacturing state, Canada, Australia, and Argentina, with their greater populations and greater resources, will grasp what opportunities there are. States of the magnitude of New Zealand will have small chance. International competition will be very different from what it is to-day. The more backward nations will only be able to come to the front at the expense of the more highly developed. Every nation cannot export manufactures in return for food and raw materials to maintain a population greatly in excess of what could live on her own produce.

Any fresh accession to the manufacturing ranks would involve the defeat of the existing predominantly manufacturing nations, and possibly the reduction of their populations. Certainly, too, the process will not be facilitated by tariffs if they continue to that time, for in economic war, as in any other war, victory is apt to lie with the biggest battalions. If New Zealand has to depend for her economic transformation on struggles with the great industrial States of the future the issue can scarcely be in doubt.

The question we have been considering is an important one, for on the answer depends some other points of interest. If New Zealand can never escape from the position of a predominantly pastoral and agricultural nation, the rosy estimates we sometimes hear of her great future population are foredoomed to non-fulfilment, and her rapid development will cease at a much earlier period than is commonly anticipated. It is quite certain that New Zealand cannot maintain in anything like the present standard of comfort five million people exporting the same proportional amount of food and raw materials as at present. It seems quite certain that her transformation, if it ever eventuates, will be slow and painful. The rapid development from the agricultural to the manufacturing state that we have witnessed in Germany cannot be emulated by this country. What small chance there may be would consist in leading in the race for a rapid increase of population. This is not encouraged by the present policy. The industry best suited to the present time and conditions in this country is the development of the land. Growth of population would be more encouraged by the removal of the artificial expenses inflicted on the farmer. This would make farming more profitable, and this would tend both to widen the area of cultivation and to promote a more intensive culture, and so lead more rapidly to the state in which the country would be economically ripe for manufactures. Again, from another point of view, the answer to our question must influence our judgment of the wisdom of a restrictive policy designed to encourage manufactures. Not only is the population of the country too small, both absolutely and relatively to its land, to be ripe for such as a general policy, but if New Zealand is never to attain the position of a manufacturing nation, one great incentive to protective measures does not exist. Many admit, that are not generally adverse to such a policy, that while an industry lives only on protection, however profitable it may be to the capitalists who engage in it, the result is a present loss to the country as a whole. By such persons the policy is recommended by arguments such as commend a policy of education in the case of an individual. A present loss or sacrifice is submitted to for the sake of a future