VARYING ADVANTAGES

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American wheat were exchanged for German cloth at any figure
between 18 and 10 of cloth against 10 of wheat. Suppose the barter
terms of trade to be advantageous to the United States; that by
sending 10 wheat to Germany she gets 15 of cloth. In Germany
15 of cloth are produced with the same labor as 121 of linen
(18:15::15:123), and it is immaterial to Germany whether she
gives 15 of cloth or 12% of linen for the 10 of wheat. The United
States gains by either act of exchange: if she gets 15 of cloth for
10 of wheat, she gains 5 of cloth; and if she gets 121 of linen for 10
of wheat, she gains 2% of linen. That particular combination or
proportioning of the commodities (15 of German cloth and 12% of
German linen for every 20 of American wheat) may precisely suit
the mutual tastes or demands. Both countries will then gain if not
cloth only, but linen also, moves from Germany to the United
States.
II. Take now a situation toward the other extreme, one in which
the barter terms of trade are favorable not to the United States but
to Germany. Suppose the United States gets in exchange for 10 of
wheat no more than 11 of cloth; the United States thus gaining
from the operation only 1 of cloth. In Germany 11 of cloth are
produced with the same labor as 9% of linen (18:15:: 11 : 9%), and
the American wheat, which exchanges for 11 of cloth, would
exchange at German rates for only 9% of linen. Obviously the
Americans get more linen (10) for their 10 days of labor by producing
 it directly than by procuring it from Germany. But more.
The United States now not only will find it worth while to produce
her own linen; she will gain by exporting it to Germany and
taking cloth in exchange. It is immaterial to the United States
whether she sends 10 of wheat or 10 of linen to Germany — both
are produced with the same labor. Within Germany, however,
12 of cloth exchange for 10 of linen, and therefore 11 of cloth
exchange for 9% linen. The United States by sending 9% linen to
Germany can get 11 of cloth in exchange. This particular combination
 or proportioning of commodities (10 of American wheat
together with 9% of American linen in exchange for every 22 of
German cloth) may again precisely suit the conditions of mutual