THE UNDERLYING PRINCIPLES 361 
cotton producers no worse than that of other Americans, and that of the 
English steel producers no better than that of other Englishmen. The extent 
to which the decrease of the American output of cotton will go depends on the 
nature of the English demand for that article; the extent to which the increase 
of English output of steel will go depends on the nature of the American demand 
in turn for this. The rapidity of the changes will depend on the industrial 
conditions. If the commodity is one produced with much plant — steel, for 
example — no great expansion can take place except by the slow process of 
addition to plant. If it is an agricultural product like cotton, grown on land 
not readily turned to other crops, the process of diminution in the United States 
will also be slow. Even more slow will it be if the conditions of production are 
like those in the vineyards of France or the coffee plantations of Brazil. On the 
other hand, a manufactured commodity made with comparatively little plant 
and from raw material that is abundant — like German cutlery — will respond 
quickly to the new conditions of demand and price. 
Under any conditions, whether of slow or rapid changes, an intervening pe- 
riod of partial and unstable adjustment is to be expected. The price of cotton, 
in our illustrative case, will rise somewhat from the bottom point; the price of 
steel will fall somewhat from the top point. And the quantities of the goods 
passing between the two countries will shift correspondingly, less cotton 
going out from the United States and more steel going out from Great Britain. 
Let it be supposed, for example, that the following situation develops :! 
U. S. exports 48 million cotton @ 53d. = £1,100,000 
(i. B. exports 60 million steel @ $0.18 = $10,800,000 
Great Britain continues to remit £250,000 on loan account. The total of ster- 
ling exchange offered them becomes : 
From cotton £1,100,000 
From loans 250,000 . . £1,350,000 
Whereas the demand (on steel account) is . «. . $10,800,000 
The rate of exchange resulting from the two quantities is £1 = $8.00. 
The gross barter terms of trade here are 48 cotton for 60 steel. The net 
barter terms we ascertain (as before) by taking separate account of the steel 
sales which serve to meet the loan remittances. In round numbers, 11 million 
steel at $0.18 will supply (with exchange at $8.00) the £250,000 needed. 
Deducting these 11 million from the total British export of 60 million steel, 
we have, as the net barter terms of trade 49 million steel against 48 million 
cotton. The net rate is less advantageous to Great Britain than at the start. 
! These figures would indicate that the English demand for cotton is inelastic : 
the quantity of cotton bought in London decreases but little with a rise in price from 
4.8d. to 55d. They would indicate, on the other hand, that the American demand for 
steel is elastic: with a fall in price from $0.20 to $0.18 the quantity of steel bought 
in New York increases a great deal.