WAGES AND PRICES IN DIFFERENT COUNTRIES 37
money incomes foreign commodities which are cheaper than they
would be if produced at home.
Regard, however, must be had also to what may be called the
absolute effectiveness of labor. On this something has already
been said, in our consideration of the nature and consequences of
absolute differences in cost; and more will be said when we come
to the competition of two (or more) countries when exporting the
same goods to a third country.! The bearing of absolute effective-
ness can be readily indicated. Referring to our illustrative case,
we might modify the figures by supposing that in the United
States five days of labor, not ten, were required for producing the
stated quantities of linen and wheat. We should then have the
following :
In the U. S. 5 days’ labor
t3) » U. S. 5 » 1)
” Germany 10 ”
” Germany 10 ”
WaGes
PER DAY
$3.00
2° WM)
- -
-
“4
D1
ToraL
WaGEs
tu
10
PropUucE
>) linen
“ wheat
*5 linen
10 wheat
Domestic
SuppLY PRICE
$0.75
30.75
$0.663%
$1.00
The United States here has the same comparative advantage
as before, but a greater absolute advantage in both commodities —
an even greater all-around effectiveness of labor than was before
assumed. Money wages in the United States are correspondingly
higher — twice as high as in the original supposition. But the
domestic supply prices remain as before; and so it is as regards
the sharing of gains ascribable to the barter terms of trade.
The general level of prices is not necessarily higher in the country
having the more effective labor, the more favorable terms, the
larger gains from international trade. True, prices of international
goods will be at the same level (still barring cost of transportation)
in the favored countries and in those not favored. But prices of
domestic goods obey laws of their own. Some of them may be
higher in price than abroad, some may be lower; and the general
level of domestic prices may therefore be higher or lower. So far
as the effectiveness of labor in producing domestic goods is great
(great, that is, in comparison with that of labor applied in other
1 See Chapter 10.
