360 
INTERNATIONAL TRADE 
will appear only under our supposition that both articles are produced and sold 
for export alone; that is, only if all the American cotton is marketed in Great 
Britain and all the British steel is marketed in the United States. If part of the 
American cotton is sold and used at home, there will be a change of price in the 
same direction, but not of the same extent. The fall in the price of cotton will 
attract domestic purchasers and increase domestic consumption; some cotton 
will be withdrawn from export. Similarly, in Great Britain, the full rise in the 
price of steel just figured out (from 4.8d. to 6d.)will appear only if the British 
production of steel has been for export only. If there has been a domestic 
market for part of it, the rise in price will check domestic purchases, and a 
larger proportion of the output will be exported. The way in which the first 
impact of the new conditions of foreign exchange will be transmitted to 
domestic prices will thus depend on two factors: the extent to which the 
commodities are directed to the export market, and the extent to which there is 
extensibility of the domestic market — the elasticity of the domestic demand. 
It was remarked a moment ago that the barter terms of trade remained 
unaltered in this first stage. So far as concerns the substantive trade, neither 
country seems to lose or gain. But there are the changes in prices, and these 
involve substantive effects of no small consequence. They entail losses to 
American producers, gains to British producers. Perversely enough, some 
British — the sellers of steel — gain from the fact that payments have to be 
made to Americans; and their gain is secured at the expense of the unfortunate 
American producers of cotton. 
Something analogous, it will be recalled, happens under specie conditions. 
There the British send specie to the United States; an apparent loss, not a real 
one. The Americans receive specie; an apparent gain but after all an illusory 
one. More or less specie is in circulation, prices are higher or lower — this in 
itself does not alter the wealth of nations. Whether under paper or specie, a 
remitting country seems to lose nothing in the first stages. 
(4) Proceed now to follow the operations thru their subsequent course. For 
the purpose of concentrating attention on the particular matters here under 
consideration — the rates of foreign exchange, prices in the two countries, the 
barter terms of trade — we may continue to set aside for the moment the effect 
on domestic purchases and domestic consumption, and treat the case as if the 
two commodities were produced and sold for export only. The price of cotton 
then will fall from $0.20 to the bottom figure of $0.16 in New York ; the price of 
steel rise from 4.84. in London to the top figure of 6d. 
Evidently under these conditions the price of cotton is unattractive to cotton 
producers in the United States, while that of steel is attractive to steel makers 
in England. The tendency will be for the production of cotton to diminish in 
the United States, and for that of steel to increase in England. Eventually the 
output of both articles will be such as to make the position of the American