114 INTERNATIONAL TRADE 
Tuan 
Jar ABE SC ae Cod 
and indeed are alone to be considered. The net terms cannot be 
such that the United States gets for her 10 of wheat less than 10 of 
linen. But the gross terms may be disadvantageous to this drastic 
extent. The United States in the present case actually gets only 
9.2 linen for every 10 of wheat she sends to Germany. True, she 
gets as much as 10.4 of linen for the money that is paid for every 10 
of wheat she exports.! But she sends additional wheat to Germany, 
which serves for the tribute remittance and brings it about that 
on the total transactions she gets only the 9.2 linen for every 10 of 
wheat. And it is these total transactions which are really of 
significance for her welfare. Germany has no substantive concern 
in the manner in which the money account is drawn up and the 
balance of payments is reckoned, in analyzing how much of wheat 1s 
to be regarded as paying for linen and how much is to be set down 
for the other remittance. What actually happens is that the 
United States parts with 10} millions of wheat and receives no more 
than 9.4 millions of linen. Germany gets much wheat, gives little 
linen. And this situation persists indefinitely. Year after year 
— so long as the tribute continues and no other items enter — the 
United States sends to Germany a large slice of the product of her 
labor and receives a small slice of the product of German labor. 
The degree to which the barter terms of trade, both net and gross, 
are altered to the disadvantage of the United States depends on the 
conditions of demand. The particular figures just chosen to illus- 
trate the consequences of a tribute payment were such as would 
result from a play of demand unfavorable to the United States. 
They are conditions of inelastic demand in Germany for wheat and 
of elastic demand for linen in the United States; in more precise 
terms, conditions in which the elasticity of demand is less than 
unity in Germany and more than unity in the United States. Tho 
the price of wheat falls from $0.85 to $0.80, Germany buys but 
very little more wheat; and she spends on wheat a total sum less 
than she spent before — $8,200,000 now, $8,500,000 before. In 
1 The terms of 10 wheat for 10.4 for linen, it will be noticed, are those which con- 
form to the prices of wheat and linen in the supposed trade. The price of wheat is 
$0.80, that of linen is $0.762; the corresponding figures for the barter terms are 10 
and 10.4.