TWO COUNTRIES COMPETING IN A THIRD 99
In the U. S.
» » ; S
”’ England
” England
”.Russia I
” Russia 10
10 days’ labor
10
’
Wages
"ER DAY
$2.00
0
}
Ni
TorAL
WaGEs
20.00
CNN
©.50
=
&
Sit
}
PropuUuce
20 wheat
1 cloth
'0) wheat
v cloth
10 wheat
10 cloth
DowmEesric
SuprpLYy PRICE
$1.00
$1.00
31.25
0.831
21.00
21.00
The supply price of wheat is the same in the United States and
Russia ($1.00), and wheat will sell at that price not only in these
countries, but in England also. Russia cannot undersell the
United States in wheat, even tho her wages are but half of Ameri-
can wages; since the effectiveness of her labor is also one-half.
Cloth is produced at a cheaper price in England than in the other
two countries; and English cloth will be exported to both, and will
be sold in both at the same price — $0.83%. The American
purchasers, tho they pay for the English cloth the same price as the
Russians, have money incomes twice as large, and therefore are
better off as purchasers. Their better situation, however, is
obviously due to the same cause as the generally larger prosperity
of the United States; it is the result of the greater effectiveness of
labor in wheat. So far as concerns the terms on which the United
States gets her cloth from England, she is on precisely the same
footing as Russia.
Construct now an international balance of payments based on
these price relations. Suppose that :
Russia and the United States (between them) buy from England
15 million cloth at $0.83} = $12,500,000
Russia and the United States (between them) sell to England
123 million wheat at $1.00 = £12.500.000
The two money totals are the same. An equilibrium of payments
is established, foreign exchange is at par, no specie moves, the
wheat and the cloth pay for each other. Wheat to the amount of
125 million bushels is exchanged for cloth to the amount of 15
million yards. That is,
123 wheat = 15 cloth, or 10 wheat = 12 cloth
Of the possible terms of trade (10 wheat for anything more than
