§ 4. The conclusion states in the Equation of International Demand.

“It may be considered, therefore, as established, that when two countries trade together in two commodities, the exchange value of these commodities relatively to each other will adjust itself to the inclinations and circumstances of the consumers on both sides, in such manner that the quantities [pg 399] required by each country, of the articles which it imports from its neighbor, shall be exactly sufficient to pay for one another. As the inclinations and circumstances of consumers can not be reduced to any rule, so neither can the proportions in which the two commodities will be interchanged. We know that the limits within which the variation is confined are the ratio between their costs of production in the one country and the ratio between their costs of production in the other. Ten yards of cloth can not exchange for more than twenty yards of linen, nor for less than fifteen. But they may exchange for any intermediate number. The ratios, therefore, in which the advantage of the trade may be divided between the two nations are various. The circumstances on which the proportionate share of each country more remotely depends admit only of a very general indication.”

If, therefore, it be asked what country draws to itself the greatest share of the advantage of any trade it carries on, the answer is, the country for whose productions there is in other countries the greatest demand, and a demand the most susceptible of increase from additional cheapness. In so far as the productions of any country possess this property, the country obtains all foreign commodities at less cost. It gets its imports cheaper, the greater the intensity of the demand in foreign countries for its exports. It also gets its imports cheaper, the less the extent and intensity of its own demand for them. The market is cheapest to those whose demand is small. A country which desires few foreign productions, and only a limited quantity of them, while its own commodities are in great request in foreign countries, will obtain its limited imports at extremely small cost, that is, in exchange for the produce of a very small quantity of its labor and capital.

The law which we have now illustrated may be appropriately named the Equation of International Demand. It may be concisely stated as follows: The produce of a country exchanges for the produce of other countries at such values as are required in order that the whole of her exports may [pg 400] exactly pay for the whole of her imports. This law of International Values is but an extension of the more general law of Value, which we called the Equation of Supply and Demand.270We have seen that the value of a commodity always so adjusts itself as to bring the demand to the exact level of the supply. But all trade, either between nations or individuals, is an interchange of commodities, in which the things that they respectively have to sell constitute also their means of purchase: the supply brought by the one constitutes his demand for what is brought by the other. So that supply and demand are but another expression for reciprocal demand; and to say that value will adjust itself so as to equalize demand with supply, is, in fact, to say that it will adjust itself so as to equalize the demand on one side with the demand on the other.

The tendency of imports to balance exports may be seen from Chart No. XIII, on the next page, which shows the relation between the exports and imports solely of merchandise, and exclusive of specie, to and from the United States. From 1850 to 1860, after the discoveries of the precious metals in this country, we sent great quantities of gold and silver out of the country, purely as merchandise, so that, if we should include the precious metals among the exports in those years, the total exports would more nearly equal the total imports. The transmission of gold at that time was effected exactly as that of other merchandise; so that to the date of the civil war there was a very evident equilibrium between exports and imports. Then came the war, with the period of extravagance and speculation following, which led to great purchases abroad, and which was closed only by the panic of 1873. Since then more exports than imports were needed to pay for the great purchases of the former period; and the epoch of great exports, from 1875 to 1883, balanced the opposite conditions in the period preceding. It would seem, therefore, that we had reached a normal period about the year 1882.271A fuller statement as to the fluctuations of exports and imports about the equilibrium will be given when the introduction of money in international trade is made. The full statement must also include the financial account.

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Chart XIII. Value of Merchandise imported into (dotted line) and exported from (black line) the United States from 1835 to 1883.

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