And thus we see - to come back to the point we started to demonstrate - that from every point of view the gold of the world, far from regulating the prices of commodities in different nations according to the amount of it temporarily carried on the back of each at any given point of time, and mechanically and automatically sliding across between them as on an inclined plane, raising and depressing prices at it goes, and by its backward and forward movement keeping the trade between any two nations, once started, going on for ever, (as Mr. Pigou and the orthodox Political Economists believe), when that trade would otherwise have ceased altogether from the want of the motive to trade which the superiority of one nation over another in everything would naturally cause; the amount of gold, I say, in any country, far from determining the general price level of commodities in that country, except to that strictly limited and insignificant extent caused by the temporary turn of the Foreign Exchanges, is, on the contrary, itself determined by the actual business transactions of the country, which raise or lower the price of commodities on the ordinary laws of supply and demand; precisely as an animal produces or secretes only as much wool, or oil, or fat, for itself, as is required for its warmth and comfort in adaptation to the environment in which it is placed, - and no more.

The mistake made by Mr. Pigou and the orthodox Economists whose mouthpiece he is, in this matter of the defence of Free Trade by means of the function of gold, is that they do not see in the first place that it is the amount of gold in the world in general actually functioning as a medium of exchange, that fixes the common denominator of prices, as it were, in each and every nation alike, - inasmuch as it is the only measure of value that is uniform and recognised by all, - and so determines through the medium of prices the relative industrial strengths of them all; and not, as they believe, the mere passage backward and forward of gold between any two or more of them without reference to this general substratum of gold common to them all.

In the second place, they do not see that with this common denominator once fixed by the consensus of the world, and the relative productive industrial capacities of the different nations ranged along it as numerators, it follows that if once one nation has, as Mr. Pigou's hypothesis assumes, an advantage over another in everything, so that, for example, it capacity can be represented, say, by the fraction 20/100, and the other only by 15/100, this differential advantage of the one nation over the other cannot be reversed by gods or men, except on the sole condition that the inferior nation makes itself in turn by some godsend or windfall (as the discovery of a gold, or diamond, or coal mine, or what not within its territory), the superior of the other; so that, whereas the assets formerly stood at 15/100 they will now stand at, say, 25/100. But to imagine that it can all be put right by passing gold or any other medium of exchange whatever over the two nations, like a universal smoothing iron, to level their industrial inequalities (by the supposed pressure which its mere quantity exercises on the two nations through its alteration of their price levels) is to confound the difference between a price which is low because it is the outcome of a superior soil, machine, or other instrument of production, and a price which is low because the instruments of production are relatively so poor that when once beaten from the field, their products, like a bankrupt's stock, can be picked up 'for a song.' And further, to imagine that when once this nation's bankrupt stock has been sold off, as doubtless it will be 'at a bargain,' the dead nation itself will come up smiling again to enter the lists of competitive international trade as if it were alive, is to outrage all reason; and is indeed to palm off again on the science of Political Economy that perpetual-motion scheming which in the science of Mechanics has long since been banished from the world.

The above, then, is our reply to Mr. Pigou and the orthodox Political Economists as to the function of gold, and the part it plays in the perpetual-motion scheme through which, and by means of which, they would compel the trade between nations once begun to go on forever, whatever chasm there might be between their relative capacities for the production of every species of wealth - a scheme which on a rigid and radical analysis of all the main factors concerned, turns out, as we have seen, to be as fallacious as on the face of it it is absurd, and the realization of which is as hopeless as to try and keep the pendulum of a clock going by merely starting it afresh after its springs or weights have run down. Being an absolute reversal of the position occupied by the orthodox Economy, our analysis will, I venture to hope, destroy the last and topmost beam from which the defence of the doctrine of Free Trade as an absolute principle, true for all nations at all times, hangs suspended; for if that beam prove unsound, this doctrine falls by its own weight; and the trade between the two nations, one of which by Mr. Pigou's hypothesis was superior to the other industrially in everything, far from going on forever, must come to a dead stop after the first pass or two, or more strictly, perhaps, would never get started at all.

And when we have analysed the mechanism of the Foreign Exchanges in our next chapter, we shall see that the perpetual continuance of Trade between nations - by means of Gold and the Foreign Exchanges, - when once started, amounts in principle only to the perpetual swing to-and-fro of the surface waves of the sea, but that the deep tidal drift of trade away from one nation and onward to another which is going on all the while unseen, depends on the relative strengths of their respective instruments of production, - and on nothing else.