I NTERNATIONAL comparison of trade barriers has always been complicated by the problem that the barriers take different, and not easily comparable forms: tariffs, exchange controls, differential sales taxes on domestic and imported products, explicit commodity quotas, implicit or hidden quotas (in the cases of western state trading and all of the trade conducted by the communist nations), and so forth. In 1958 a distinguished panel of experts headed by Gottfried Haberler [4] suggested that the degree of protection can be very roughly judged by the extent to which the price paid to the producer exceeds the world price for importers. . They were well aware of many of the difficulties of this method such as the effect on both domestic and world prices of the goods in question of subsidies given to both exporters and domestic producers. The United Nations Economic Commission for Europe used this technique in 1960 [ 12 ] to study agricultural protection in Western Europe. They also were aware of many of the statistical and methodological pitfalls of this technique and, in particular, called attention to the problems raised by the existence of disequilibrium exchange rates and the levy of tariffs on commodities requiring differential amounts of fabrication in the importer. Several other workers have also found the Gatt approach convenient, e.g., Dardis and Pryor [4, 8]. Pryor, interested in comparing the trade barriers by Eastern and Western Europe, respectively, to the exports of underdeveloped nations as a result of discussions which grew out of UNCTAD I. innovated by adjusting the ratios of domestic to world prices for the fact that the price levels of some nations are biased upward by a relatively large reliance on sales as opposed to income taxation. I point out in this paper two major difficulties with the use of the ratio of domestic to world (or import) price as a proper and unambiguous measure of barrier to imports. The first has to do with problems of defining barrier in view of the several different price ratio-quantity relationships which are possible under differing circumstances and assumptions. Second, the implications for this method of disequilibrium prices and repressed inflation are explored. This is particularly relevant for comparisons involving the Union of Soviet Socialist Republics and Eastern Europe [7] since the economies of these nations have consistently experienced repressed inflation. However, it is also relevant to comparisons which would have included Western Europe after World War II and some of the underdeveloped nations at present.

Thompson's model preserves the existence of many firms producing the collective good by having all firms act under the Cournot-Bertrand convention and by discriminating in price among consumers. This use of the Cournot assumption is clearly at variance with the prior assumption by Thompson that there is perfect knowledge of all market-relevant information . peculiar results of the Thompson model rely on perfect knowledge by producers of consumers' preferences, and upon perfect knowledge by consumers of the intentions of producers to discriminate in price. But perfect knowledge of all market-relevant information evidently excludes knowledge of the fact, by any producer, that he can have all the revenue of the industry at no additional cost simply by reducing his price (s) slightly. This is simply not compatible with perfect competition as usually understood, and has nothing to do with whether or not consumers have an incentive to compete against each other. A new entrant or an existing firm in Thompson's model who accidentally reduces his price will reap great rewards. This could not happen in a perfectly competitive equilibrium. If any firm in Thompson's model reduces its price, a destructive competitive price reduction spiral will ensue, reducing the price to equality with marginal cost, which is zero. This is what perfect competition is all about, and it is very different from the behavior of Thompson's producers, who do not, in fact, compete. Just as the nongovernment allocation of a good requires barriers to competition, price discrimination requires the same. There is nothing in the inherent nature of a good which provides these barriers. As a result, Thompson has to make special assumptions about the nature of competition to get his result. These assumptions are not consistent with perfect competition. I would have no quarrel with Thompson if he had titled his paper The Production of Collective Goods Under a Very Peculiar Kind of Non-Competitive Polipoly, and had deleted all further references to perfect competition. One might still argue, of course, that the model is then void of either practical or theoretical usefulness. On the practical side, I submit that each of the examples cited by Thompson of the (e.g., nongovernment) allocation of a good is a case in which there is either some barrier to competition, or in which some good has been substituted for the collective good. In broadcasting, for example, stations substitute the private good, audience size, for the public good, programming. They sell the good, not the one. No collective good can be privately and competitively produced. Nongovernmental allocation of such a good requires both exclusion devices and barriers to competition. Efficient allocation may require price discrimination.

It has been argued recently that the size of the holdings of foreign exchange by commercial banks provides a better measure of the adequacy of international means of payments than the size of official reserves.' At first glance this appears obvious for it is these commercial holdings of foreign exchange which are used directly for financing international exchange while official reserves are used only to finance imbalances in countries' balance of payments which result from the maintenance of relatively exchange The argument becomes less clear, however, when one stops to question what is meant by the adequacy of international means of payments. Within a free market context, what does it mean to say that commercial holdings of foreign exchange are inadequate? The commercial interests involved clearly can not feel that their foreign exchange holdings are inadequate (apart from a desire to have higher wealth positions in general) for otherwise they would simply exchange domestic for foreign currency until their foreign currency holdings were no longer inadequate. In other words, from the point of view of commercial banks and traders, at any point in time would merely mean a temporary disequilibrium situation. traders on both sides of the market felt their foreign currency holdings to be inadequate then they would in effect merely swap currencies with one another (a practice now common between central banks). the size of the desired swaps did not match on each side of the market, then under flexible rates the price of the relatively scarce currency would be bid up until desired holdings equalled actual holdings, i.e., until foreign currency holdings were adequate. As Yeager has put it, If no authority concerned itself with gold and foreign exchange, and if private persons, firms and dealers such as banks, found their holdings inadequate, they would bid for additional amounts, thus depressing the home currency on the exchange market, stimulating exports relative to imports, and making available the quantity of foreign exchange desired at the new level of exchange rates. 2 Under a fixed rate system the increased demand for foreign currency would be reflected in official reserve losses. In either case, observed foreign currency holdings would always reflect desired or adequate holdings except for the effects of transitory disequilibrium. We could, however, meaningfully speak of inadequacy in terms of a discrepancy between desired and actual holdings if a free market does not exist. In other words, where exchange controls, etc. effectively prevent traders from satisfying their demands for foreign balances then we could unambiguously say that observed holdings were inadequate. As is brought out in Heller's figures,3 the rapid expansion of holdings of foreign currencies by banks in industrial Europe as postwar exchange controls were loosened suggests that there was considerable inadequacy at the beginning of the period. one accepts the argument put forward here that one can meaningfully speak of an inadequacy of commercial holdings of foreign exchange only where traders do not face free markets for foreign exchange, then inadequate commercial holdings of foreign exchange are themselves a reflection of an inadequacy of official reserves (at least from the point of view of the country in question). In other words, inadequacy of commercial holdings of foreign exchange is a reflection of impediments placed on the foreign exchange market which in turn reflect that the government of the country in question feels that its official reserve holdings are below their desired level, i.e., that they are inadequate. At first glance Heller's figures would seem to contradict this argument. Over the 1951 to 1966 period the global ratios of official reserves to imports and banks' foreign exchange holdings to imports show quite different trends, the former falling by almost one half while the latter almost tripled. Hence, Heller's conclusion that, while according to