12
INTERNATIONAL TRADE
reasoning that they do rise when money becomes more plentiful, do
fall when money becomes less plentiful. An inflow of gold from
one country to another causes prices to fall in the first, to rise in
the second. I would not be supposed to imply that so bare and
simple a statement as this tells the whole story of the working of
the monetary mechanism. As will appear later, some of the
most troublesome complications of the subject arise precisely in
connection with the working of that mechanism. The reader’s
patience is asked once more. Let the simpler aspects of the
problem be first cleared up.
Suppose now money wages to be $1.50 a day in the United States
and $1.00 a day in Germany. And suppose too that this is the sole
expense involved in producing the commodities in the two coun-
tries. Ignore any return to capital; to that complication, as to
others, attention will be given in due course. With regard to
the supposed figures on wages, consider them for the present
merely as a status quo. Accept them as existent. It will appear
presently how they came to exist, and in what way such money
rates of wages are related, in the last analysis, to the prices of the
goods.
Then, still assuming that within each country there is free
movement of labor and that goods sell on the basis of the labor
involved in producing them, we have the following results :
In the U. S. 10 days’ labor
bh 2» U. S. 10 J) »
” Germany 10 ” »
” (Germany 10 ” 2
WAGES
PER DAY
£1.50
£1.50
$1.00
£1.00
Wont Propuce PE
15 30 copper $0.50
£15 15 linen $1.00
$10 15 copper $0.662
$10 30 linen $0.33%
al
Observe the term “domestic supply price.” By this is meant
the price at which, under the given conditions of expenses of pro-
duction, each article could be steadily brought to market and
sold. It is the (simplified) money cost of production; the kind
of “cost” which figures in most economic discussion and in all
business discussion. Since we are here (and in almost all parts
of this book) using “cost” in the other sense — that of labor cost
— it will obviate misunderstanding and will conduce to clarity if
