110 
INTERNATIONAL TRADE 
1%, 
The United States has a comparative advantage in producing 
wheat, and will import linen from Germany even tho her labor is 
more effective in producing linen than is German labor. The 
barter terms of trade will be 10 of American wheat for anything 
between 10 and 15 of German linen. The nearer it is to 15 linen 
— the more linen Germany gives for 10 of wheat — the more the 
United States will gain; the nearer it is to 10 linen — the less 
linen Germany gives for 10 of wheat — the more Germany will 
gain. 
Carry the case out in terms of prices and money wages. I 
select, as the starting point in the present set of illustrative figures, 
a situation in which the barter terms of trade are 12% of linen for 
10 of wheat — that in which the gain from the trade is equally 
divided between the two countries. 
In the U. S. 10 days’ labor 
pb) » iu S. 10 » » 
” Germany 10 2 
” Germany 10 7” » 
WAGES 
PER DAY 
®1.70 
$70 
$102 
$1.02 
ToTAL 
Wages 
$17 
$17 
$10.20 
$10.20 
DoMEsTIC 
PRODUCE qi ppry Price 
20 wheat $0.85 
20 linen $0.85 
10 wheat $1.02 
15 linen $0.68 
EE 
1] 
The money cost of wheat is less in the United States than in 
Germany, and wheat moves from the United States. The money 
cost of linen is less in Germany, and linen moves thence to the 
United States. 
Suppose, lastly, that at the prices stated ($0.85 for wheat 
and $0.68 for linen), the quantities of the two commodities that 
move are : 
10,000,000 wheat exported from the U. S. at $0.85 = $8,500,000 
12.500.000 linen exported from Germany at $0.68 = $8,500,000 
The money amounts balance. Foreign exchange is at par; no 
specie flows. 10 millions of wheat exchange for 12% millions of 
linen; the barter terms of trade thus are 10 wheat for 12% linen. 
Suppose now that the United States has to remit to Germany a 
million dollars annually — a tribute, or the like. The total money 
sum payable by people in the United States to those in Germany is 
now nine and a half millions — eight and a half millions for the