Page:The New International Encyclopædia 1st ed. v. 10.djvu/800

* INTERNATIONAL TRADE. 710 INTERNATIONAL TRADE. In the iiieantimo new questions have arisen which call fur attention, it needs no e.i>ert to ]icrci-ivc the advantage of tnnlc iK-twecn tein- peiate and tropical countries. 15ut in the trade of temperate countries among each other the ad- vantage is not 80 apparent. It mav, and does, happen that a country will import from another a commiidity which it can produc*- at lunnc at les.s labor cost than is expended upon its pro- duction in the country whence it is imported. If such is the case, it is dear that pnnluction does not always take place at the point of maxi- mum advantage. It is assumed that within a given country production is carried on at the point of greatest advantage, because of the mo- bility of capital and labor. Hut between dilfer- cnt nations there is not such perfect mobility, and production c<iiitinues iindcr varying circum- stances of advantage and disadvantagi'. In ilo- meslic trade the costs of [)niducti(in, as a rule, determine prices and values; but in international trade there must be another rule. If England can produce a connnodity A with 10 units of pro- ductive power, while a foreign country rccpiires 12 units for the same commodity, Knglaiid may buy of the foreign country, but certainly will not pay 12 units for the goods. The (irsl ques- tion which arises is. Why does not Kngland in these circumstances produce the commodity A? Simply because in the production of other com- modities 1?, V:. D, etc., it enjoys still greater advantages over foreign countries. Its maxi- mum productivity is gained by concentration on these other lines of production. In the ease mentioned the costs of production for England and the foreign country may be stated as fol- lows for like ipiantities of each commodity: A. Enjcland 10 uiiiui, t)ie tnrelgiicnuntr; 12 units. B. ■• 9 •■ 13 •' C. ■• 8 1* •• D. '• 7 '• •' " ■• 15 ■■ It is clear that it will be profitable for Eng- land to produce B, C, D for its own wants, and so much in e.vcess thereof as it can persuade the foreign country to take, while it will pay the latter to concentrate its production upon A and supply so far as possible its needs for H, C. and D by importations from England. This shows the motive for an international trade nniler these circumstances. There is a further question as to the rate at which these articles will be ex- changed. iNTEnnATioNAi, VALUES. As in the illustration given, it is obvious that England will not pay the foreign country 12 units for . when it can produce A at home for the expenditure of 10 units, the question is how much the foreign coun- try will obtain. If the demand in Enulaiid for A is equal to the deniand of the forciLii <oimtry for D, the exchange will take place lietween those commodities. England will get its supply of A at the co.st of producing D; the foreign country will get its supply of T) at a cost of 12 productive units instead of 15 productive units. The advantages of the trade are obvious, and the total production of the two countries concerned is greatly increased. If there was no demand in the foreign country for D. but on the other hand a large demand for C, the trade might be between those commodities, and the advantage, thoucrh less, micrht still be considerable. These simple illustrations allow us to state the rule of international value. It is that in interna- tional trade the price paid for the foreign article does not follow the costs of production of that article in the country in which it is produced, but rather the costs of production of the artich- exported in exchange for it. This rule is staled only as a tendency. Economists have devoted considerable attention to the actual e<|Uatii>ii of exchange. A single modification of the fore- going illustration will indicate the inlinilc vari- ety of circumstances which modify in practice the tendency stated. Let us suppose that Eng- land needs a larger quantity of the conmiodity A than the foreign country does of D. To stimu- late the demand for D, it must be offered at a lower ])rice. So that on the new basis by the exchange of the i)roduce of 11 units of productive power the foreign country gains the same goods as before. Us ailvantage in the acquisition of D is therefore 15 units — 11 imits, or 4 units. On the other hand, England has gained a rpiantity of A corresponding to the expenditure of !) units of her own productive power; her gain by the ex- change is no longer 3 units, but only 2. In this manner ar infinite varietj- of circumstances, such as cost of carriage, customs, exchange, may be introduced to modify the conditions of the problem. It is not to be overlooked that the necessity for a special theory of international trade and of international values has been broadly denied by some writers. They claim that as nations as such do not trade with one another, but only the in- dividuals which compose them, there is no real distinction between the trade of individuals in one country and those of two dilTcrcnt countries. They point out further that there are often with- in the .same country regions more widely s<'pa- rated and in less intimate relation with one an- other than are two foreign coimlries. To this criticism it is objected that the word nation is re- tained in this discussion for convenience merely, and that while the economic characteristics in- volved — namely, a lack of mobility of capital and labor — are most jironounced l}ctwcen regions under difTerent governments, laws, customs, lan- guages, and monetary systems, it may be conced- ed that under the same national Government there may l)e regions which pfisscss the same economic isolation from one another. This does not ilcstroy the theory, but only enlarges its application. Ve may turn now from the attitude of the economists to that of the public authorities. lli.sToiiY OF 1ntern.tio.nal Tradk. It has al- ready been pointed out that the earliest trade was between widely distant nations rather than con- tiguoiis ones; that in the entire period which preceded the nineteenth century trade between difTerent countries rested upon a pronounced difTerenee in their products, rather than on such slight advantages of comparative cost as in modern times. Kundaniental, moreover, for an I'nderstancing of the course of earlier trade is a proper appreciation of the costs of carriage and of the legal obstacles to trade imposed by the governments. These considerations afTected in a high degree trade by land, and in lesser measure that by sea and alonor the navigable rivers. The great physical contrast upon which early trade was founded was that of temperate and tropical countries which in historic time= w.ns the contrast of West and Ea.st. This physical contrast was enhanced by a distinct historical