28

INTERNATION AL TRADE

fall and Americans will be tempted still more to buy German linen.
On the other hand, as American wheat prices rise, the German
purchasers, tho still buying more wheat than before, will gradually
slacken in their purchases of the American article.
The final outcome will be something like the following :

U. S. sends to Germany 10,500,000 bushels wheat at $0.85 = $9,000,000.
Germany sends to U. S. 15,000,000 yards linen at $0.60 = $9.000.000.

The money sums balance. Imports exactly pay for exports in
each country. Foreign exchange is again at par; no specie
flows.

The barter terms of trade have now become more favorable to
the United States. In the physical quantities of the goods a
different relation has developed. 10% million bushels of wheat now
exchange for 15 million yards of linen; the terms of trade are 10%
for 15, or 10 for (nearly) 14%. Under the previous supposition
the United States got 11% linen for every 10 bushels of wheat;
now she gets 14% linen for every 10 bushels.
Continuing the analysis, we may examine what would be commodity
 wages (“real” wages) in the two countries. If, as before,
the purchasers in both spent one-half of their incomes on each
commodity, we should have:

[ one-half spent on wheat @ $0.85 = 1 wheat
In the U. S. wages $1.70 ” len el 060 = 1 linen
2 »” 7” wheat @ $0.85 = 1% wheat
In Germany wages $0.90 ” tl a heh. 6 $0.60 = 2 linen

American wages have risen in terms of linen. Before, the day’s
commodity wages were 1 wheat plus 1} linen; now they are 1
wheat plus 14% linen. German wages will have fallen in terms of
wheat; the day’s commodity wages, which had been £ linen plus
2 wheat, now are % linen plus {% wheat. The less advantageous
terms on which the trade takes place for Germany are reflected in
lower commodity incomes for the Germans; and the more advantageous
 terms for the United States are reflected in higher commodity
 incomes for the Americans.

t The ficures are not exact but mav be accented for purposes of illustration.