VALUES IN INTERNATIONAL TRADE 209

If, instead of a diminution of the domestic scale of
production, we suppose an enlargement to take place, the
assumed conditions mean that the cost of production, per
unit of product, would be reduced as a consequence. Thus,
the capacity for competing with the imported product is
increased, and, unless a corresponding reduction can be
effected in the price at which it can be procured, the product
of the domestic industry must progressively replace the
imported product,
Putting together the above results, they support the
conclusion that, with increasing returns dominating the
domestic industry, the competition of a foreign product must
either lead to the extinction of the domestic industry, or the
importation must be extinguished. This certainly holds if
returns increase regularly and continuously in the domestic
industry, that is, if every increase in scale of output means
greater economy of production and the converse. But the
practical conditions may present a somewhat different
appearance. There may be a prospect of economy by
enlarged production in the industry, when the enlargement
has been effected. But to effect it implies capturing the
market to that extent. The difficulties of this capturing of
the market may impose a sufficient obstacle to the enlargement
 to prevent its realisation, though the prospect of
sconomy, were the enlargement effected and the greater
production proceeding regularly, be undoubted. The conflict,
between experience and the logical result of the assumption
of increasing returns when applied relentlessly, resembles
somewhat the question of the persistence of competition in
domestic industries under conditions of increasing returns to
enlarged scales of production. The practical conditions may
correspond generally to those assumed, increased economy
with increased scale of operations, but the deductions need
to be made with care, and in view of the practical limitations
to the precise applicability of the assumption at every moment.
In practice, too, a large proportion of the goods imported
from abroad are not precise duplicates of the products of
domestic industry. In the relative valuation of the foreign
and domestic products, the influence of habit and pre-