When a community establishes trading relations with foreigners,
it is usually able to transform goods of one kind into goods of
another kind more readily than before. The process of transforma-
tion need no longer be confined to domestic factories. It can be
carried out by trade abroad. Unless the terms on which, before
trade starts, one good can be exchanged for another in the foreign
market are exactly the same as the rate at which the one can be
transformed into the other at home, access to the foreign market
is clearly equivalent to an outward shift of the social production
frontier. ^†

So far we have done no more than state the classical doctrine
of comparative costs in a refined form; but we can go a stage
further. Unless there are excessive external effects in consumption
in the domestic economy, the outward shift of the production
frontier will (except in a limiting case) result in an outward shift
of the welfare frontier. In this sense, therefore, some trade is
always at least potentially beneficial. ^‡ As Ricardo put it, it will
'increase the mass of commodities, and therefore the sum of
enjoyments'. ^§ But what is the optimum amount of trade? Is it the
amount realized under free trade? The answer is that it is not--
except under quite exceptional circumstances. The argument
involves the classical discussion of Tariffs and the Terms of Trade,

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