CAPITAL AND INTEREST 
65 
is still at the same price in both countries, copper has become 
cheaper in the United States, and can be profitably exported to 
Germany. Linen at the outset will not move from Germany; 
specie will be sent to pay for the American copper. As prices and 
money incomes rise in the United States and fall in Germany, linen 
will become dearer in the United States and cheaper in Germany, 
and will begin to move. 
The extent of the consequent readjustment of prices depends as 
need not again be explained, on the conditions of demand for 
copper in Germany, for linen in the United States. A possible 
outcome would be the following : 
Days’ wanes TorAL 
LABOR Day WaGes 
£2.10 
$2.10 
$1.20 
$1.20 
U.S. 10 
U.S. 10 
Germany 1G 
Germany 10 
INTEREST TorAL 
CHARGE ! EXPENSES 
5% on $105 = $5.25 
nil 
10% on $60 = $6.0G 
nil 
$26.25 
221.00 
$18.00 
£12.00 
Propuce 
30 copper 
: linen 
20 copper 
10 linen 
DowmesTic 
SuppPLY 
Price 
20.87% 
81.40 
£0.90 
£1.20 
We now have the conditions under which both articles will move. 
Copper is cheaper in the United States, as before ; but linen is now 
cheaper in Germany. International trade arises and rests on 
enduring conditions. It will go on indefinitely, to the advantage 
of both countries. 
The general proposition to which this series of illustrative 
figures points is that interest on capital acts on international trade 
not in itself, but only in so far as it operates differently on different 
commodities. At the very start it is obvious that an interest 
charge, added uniformly to the expenses of production, brings no 
alteration in relative prices, since it acts equally on all com- 
modities. Nor does an interest charge have an effect simply 
because it is at a different rate in the two countries — higher in 
one than in the other. If within each it acts uniformly thruout, it 
1 Tt will be noted that in calculating this interest charge, the capital amount 
has been made greater than before for the United States ($105 instead of $100), 
and less than before for Germany. This modification of the capital sum is in 
accord with the changes in money wages in the two countries and the consequent 
changes in domestic prices. As wages have risen by 5 per cent in the United States 
(from $2.00 to $2.10), the money value of the capital instruments will have risen 
by 5 per cent, or from $100 to $105. As wages have fallen by 10 per cent in 
Germany (from $1.33% to $1.20), the money value of the capital instruments will 
have fallen by 10 per cent, or from $66.66 to $60.