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.[270] We 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.[271] A 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.
Chart XIII. Value of Merchandise imported into (dotted line) and exported from (black line) the United States from 1835 to 1883.
§ 5. The cost to a country of its imports depends not only on the ratio of exchange, but on the efficiency of its labor.
We now pass to another essential part of the theory of the subject. There are two senses in which a country obtains commodities cheaper by foreign trade: in the sense of value and in the sense of cost: (1.) It gets them cheaper in the first sense, by their falling in value relatively to other things; the same quantity of them exchanging, in the country, for a smaller quantity than before of the other produce of the country. To revert to our original figures [of the trade with Germany in cloth and linen]: in England, all consumers of linen obtained, after the trade was opened, seventeen or some greater number of yards for the same quantity of all other things for which they before obtained only fifteen. The degree of cheapness, in this sense of the term, depends on the laws of International Demand, so copiously illustrated in the preceding sections. (2.) But, in the other sense, that of cost, a country gets a commodity cheaper when it obtains a greater quantity of the commodity with the same expenditure of labor and capital. In this sense of the term, cheapness in a great measure depends upon a cause of a different nature: a country gets its imports cheaper, in proportion to the general productiveness of its domestic industry; to the general efficiency of its labor. The labor of one country may be, as a whole, much more efficient than that of another: all or most of the commodities capable of being produced in both may be produced in one at less absolute cost than in the other; which, as we have seen, will not necessarily prevent the two countries from exchanging commodities. The things which the more favored country will import from others are, of course, those in which it is least superior; but, by importing them, it acquires, even in those commodities, the same advantage which it possesses in the articles it gives in exchange for them. What her imports cost to her is a function of two variables: (1) the quantity of her own commodities which she gives for them, and (2) the cost of those commodities. Of these, the last alone depends on the efficiency of her labor; the first depends on the law of international values; that is, on the [pg 403] intensity and extensibility of the foreign demand for her commodities, compared with her demand for foreign commodities.
The great productiveness of any industry in our country has thus two results: (1) it gives a larger total out of which labor and capital at home can receive greater rewards; and (2) the commodities being cheaper in comparison than other commodities not so easily produced, furnish the very articles which are most likely to be sent abroad, in accordance with the doctrine of comparative cost. In the United States, those things in the production of which labor and capital are most efficient, and so earn the largest rewards, are precisely the articles entering most largely into our foreign trade. That is, we get foreign articles cheaper precisely because these exports cost us less in labor and capital. These, of course, since we inhabit a country whose natural resources are not yet fully worked, are largely the products of the extractive industries, as may be seen by the following table of the value of goods entering to the greatest extent into our foreign export trade in 1883:
| Raw cotton | $247,328,721 |
| Breadstuffs | 208,040,850 |
| Provisions and animals | 118,177,555 |
| Mineral oils | 40,555,492 |
| Wood | 26,793,708 |
| Tobacco | 22,095,229 |
These six classes of commodities are arranged in the order in which they enter into our export trade, and are the six which come first and highest in the list.