Similar theorems have been worked out by Professor Marshall for both taxes and bounties on the productions of an isolated country.1 Ricardo says that a bounty to corn producers would not increase the rent of landlords, and that the price would be lowered by the amount of the bounty.2 Though we have not worked out the problem of a corn export bounty, we may note that Ricardo says that it does not raise the price in the home country, while Smith says that it does raise it. In comparing such conclusions with the results obtained in this example the differences in the hypotheses should be borne in mind since they have important effects on the terms of exchange. 3 Finally we may note that Professor Marshall has shown that in the case of an isolated country beneficial results might be obtained by taxing commodities produced at diminishing returns and paying bounties to producers of commodities produced at increasing returns. In the same way, in international trade, there would be a certain combination of taxes and bounties which would give the greatest benefit to both countries taken jointly. But it would be impossible to work out the problem, by the method used here, even under the abstract conditions assumed." The discussion here has been purely abstract, and is valid in a definite sense only for the particular problem considered. It is a long step to the tremendous complexities of actual trade, with many articles, many countries, variable costs, transportation charges, etc., etc. Whether, therefore, any of the conclusions reached here would do much to fortify, for example, Professor Patten's argument, it would be rash to conclude. It would certainly be rash to conclude that England, for example, ought to abandon free trade and establish bounties on manufactures, etc.8 Professor Marshall has admitted that such taxes as an export tax 1 Marshall, Principles, 1st ed., pp. 448, 453. Ricardo, Principles, p. 194. 'Ib., 182. 'Smith, Wealth of Nations, 206, ed. Nicholson, London, 1884. 'Marshall, Principles, 1st ed., p. 452. 6 Auspitz u. Lieben, p. 428. On the limitations of the geometrical method, compare Edgeworth, Economic Journal, iv, p. 424. 1 Professor Marshall says: "I can see no force in Professor Patten's new defence of Protection as a permanent policy."-Some Aspects of Competition, Address before the British Association, 1890. 8 Cf. ib., p. II. on coal might, in a limited sense, be advantageous to England, but he holds that international comity, as well as the fear of reprisals, should deter her.1 Messrs. Auspitz and Lieben have dwelt on the probable losses from reprisals and commercial war as far outweighing any possible gains from customs regulations, etc.2 Besides, there is the practical danger of corrupt or selfish arrangements as opposed to scientific arrangements, assuming that science could determine them.3 FRANCIS WALKER. CLEVELAND, May 1902. NOTE. The second method proposed above for determining the effects of trade is the balance of commodity exports. We need not assume that the steel exports of B will cease because they have reached the price level of A. In fact, it is an artificial but convenient assumption to suppose that steel would be exported from B, unless that point had been reached. Instead, therefore, of paying a cash balance, we may suppose that the traders in B continue to export steel to cover the whole value of the corn imported, although this would lower the price level in B and raise it in A, so that the price would be lower in B than in A. In this case there is an absence of equilibrium in the money supply. The trade would really continue in the form of money sent from A to purchase steel in B, but this would make price changes in both countries, which would tend to keep the prices of the two commodities in both countries at a level; there would be higher prices in B for steel, diminishing the incentive to buy it, higher prices for corn in B, leading to a demand for more corn from A, while in A the opposite effects would appear with lower prices. The actual movement would be very complex and too intricate to be followed by the method used here. The results obtained by bringing the exports to an equality in value are, therefore, approximate, as are the results obtained with a gold balance. 1 Marshall, Economic Journal, June, 1901, p. 265. 2 Auspitz u. Lieben, p. 428-9. 3 Walker, "Protection and Protectionists," Quarterly Journal of Economics, iv, P. 275. The level of corn prices is reached (according to the diagram) when A exports 13,000,000 bu. to B. The export has a value of $7,664,000. The present question is how much steel must be imported into A in order to pay for it? The steel import will be such that at a price level in A the demand will exceed the local production by $7,664,000. By computation we find that at $29.70 the demand is for 5,810,000 tons, at a value of $172,557,000, and the local supply is 5,550,000 tons, costing $164,835,000, giving a difference of $7,722,000-approximately the quantity sought. There would, therefore, be an importation of steel into A of about 260,000 tons. The effect of this increase of production in B would be to increase the local demand by diminishing costs. The new point of equilibrium of supply and demand in that market would be where the demand fell short of the supply, at a level of price, by 260,000 tons. This can be found by measurement on the diagram, and is at a production of 7,420,000 tons, at $29.35 per ton, the demand at that price covering 7,160,000 tons. The steel export from B would cost $7,631,000; the consumption in B would be valued at $210,146,000, and the production at $217,777,000. Under this we find the production to be as follows: A produces 106,200,000 bu. @ 581⁄2c., . $64,127,000 164,835,000 $228,962,000 which shows, in comparison with the results by the first method, a discrepancy of $1,569,000. B produces 46,600,000 bu. @ 581⁄2c., . 44 $27,261,000 217,777,000 $245,038,000 discrepancy $2,275,000. There is a difference between the cost price of steel in B and the selling price of its export, because the price levels are different in the two countries. In regard to general results of the trade, we find no difference between the two methods. The results in respect to consumption are, A consumes 93,100,000 bu., $54,463,500 |