Let us suppose that the amount of iron ore imported every year by No. B from No. A is worth £10 million. This of course has to be paid for. In other words, Island No. B has got to export manufactured goods in iron and steel back to Island No. A as payment for the iron ore which No. B imports for smelting. It also has to pay for the freight on the iron ore from No. A, that is, for the cost of bringing it over the sea to No. B. Let us suppose this cost to be one million. The total value of the iron goods produced on No. B, after being smelted with the coal of No. B, is, let us say, £30 million. Of this, £11 million goes back for the cost of carrying the ore from Island No. A and for its purchase. Meanwhile we may neglect economic values of Island No. C, because the few wretched inhabitants and their handful of cattle hardly count. Here, then, we have a wealth of £30,000,000 in manufactured iron goods, of which £10,000,000 goes to Island No. A and £19,000,000 to Island No. B, and £1 million to whoever carries the ore in ships. If you were estimating the wealth of the whole realm made up of the three islands, A, B and C, you would say: “The wealth of these people consists in manufactured iron and steel goods. It is equivalent to £30,000,000 a year, of which some £10,000,000 is revenue to Island A and £19,000,000 is revenue to Island B and £1 million earned in freights. The wealth of Island C is negligible.” Well and good. Now supposing the political conditions to change. Islands B and C belong to one realm in future but Island A has become a foreigner. The realm to which Islands B and C belong turns Protectionist and sets up a barrier in the shape of a tariff against iron ore coming from abroad. We have seen that the cost of carrying iron ore from No. A to No. B was £1,000,000. No. C being much farther away from No. B, let us say that the cost of carrying is £5,000,000, but it is carried by subjects of the realm. The tariff put up by the realm to which Island B and C belong is what is called “prohibitive”--that is, it is so high that it keeps the iron ore of No. A out altogether, and the smelters on Island No. B are bound to get their iron ore from that distant Island C. Let us see what happens. Island No. B has now got to pay a freight, that is, cost of bringing the iron ore, five times as much as it used to be. Instead of paying £11,000,000 for its ore (£10,000,000 at the mine and £1,000,000 for carriage) it is now paying £15,000,000 (£10,000,000 at the mine and £5,000,000 for carriage). It still makes £30,000,000 worth of goods a year, but it only has £15,000,000 left over for its own income, instead of the £19,000,000 which it used to have. It is thus impoverished.