Nations may, like individual dealers, be competitors, with opposite interests, in the markets of some commodities, while in others they are in the more fortunate relation of reciprocal customers. The benefit of commerce does not consist, as it was once thought to do, in the commodities sold; but, since the commodities sold are the means of obtaining those which are bought, a nation would be cut off from the real advantage of commerce, the imports, if it could not induce other nations to take any of its commodities in exchange; and in proportion as the competition of other countries compels it to offer its commodities on cheaper terms, on pain of not selling them at all, the imports which it obtains by its foreign trade are procured at greater cost.
One country (A) can only undersell another (B) in a given market, to the extent of entirely expelling her from it, on two conditions: (1) In the first place, she (A) must have a greater advantage than the second country (B) in the production of the article exported by both; meaning by a greater advantage (as has been already so fully explained) not absolutely, [pg 451] but in comparison with other commodities; and (2) in the second place, such must be her (A's) relation with the customer-country in respect to the demand for each other's products, and such the consequent state of international values, as to give away to the customer-country more than the whole advantage possessed by the rival country (B); otherwise the rival will still be able to hold her ground in the market.
Let us suppose a trade between England and the United States, in iron and wheat. England being capable of producing ten cwts. of iron at the same cost as fifteen bushels of wheat, the United States at the same cost as twenty bushels, and the two commodities being exchanged between the two countries (cost of carriage apart) at some intermediate rate, say ten for seventeen. The United States could not be permanently undersold in the English market, and expelled from it, unless by a country (such as India) which offered not merely more than seventeen, but more than twenty bushels of wheat for ten cwts. of iron. Short of that, the competition would only oblige the United States to pay dearer for iron, but would not disable her from exporting wheat. The country, therefore, which could undersell the United States, must, in the first place, be able to produce wheat at less cost, compared with iron, than the United States herself; and, in the next place, must have such a demand for iron, or other English commodities, as would compel her, even when she became sole occupant of the market, to give a greater advantage to England than the United States could give by resigning the whole of hers; to give, for example, twenty-one bushels for ten cwts. For if not—if, for example, the equation of international demand, after the United States was excluded, gave a ratio of eighteen for ten—the United States would be now the underselling nation; and there would be a point, perhaps nineteen for ten, at which both countries would be able to maintain their ground, and to sell in England enough wheat to pay for the iron, or other English commodities, for which, on these newly adjusted terms of interchange, they had a demand. In like manner, England, as an exporter of iron, could only be driven from the American market by some rival whose superior advantages in the production of iron enabled her, and the intensity of whose demand for American produce compelled her, to offer ten cwts. of iron, not merely for less than seventeen bushels of wheat, but for less than fifteen. In that case, England could no longer carry on the trade without loss; but, in any case short [pg 452] of this, she would merely be obliged to give to the United States more iron for less wheat than she had previously given.[288]
It thus appears that the alarm of being permanently undersold may be taken much too easily; may be taken when the thing really to be anticipated is not the loss of the trade, but the minor inconvenience of carrying it on at a diminished advantage; an inconvenience chiefly falling on the consumers of foreign commodities, and not on the producers or sellers of the exported article. It is no sufficient ground of apprehension to the [American] producers, to find that some other country can sell [wheat] in foreign markets, at some particular time, a trifle cheaper than they can themselves afford to do in the existing state of prices in [the United States]. Suppose them to be temporarily unsold, and their exports diminished; the imports will exceed the exports, there will be a new distribution of the precious metals, prices will fall, and, as all the money expenses of the [American] producers will be diminished, they will be able (if the case falls short of that stated in the preceding paragraph) again to compete with their rivals.
The loss which [the United States] will incur will not fall upon the exporters, but upon those who consume imported commodities; who, with money incomes reduced in amount, will have to pay the same or even an increased price for all things produced in foreign countries.
But the business world would regard what was going on under economic laws as a great and dreaded disaster, if it meant that prices were to fall, and gold leave the country. Those holding large stocks of goods would for that time suffer; and so, at first, it might really happen that “exporters,” in the sense of exporting agents (not the producers, perhaps, of the exportable article), would incur a loss. In the end, of course, the consumers of imports suffer. But, temporarily, and on the face of it, exporters do lose.
§ 2. High wages do not prevent one Country from underselling another.
According to the preceding doctrine, a country can not be undersold in any commodity, unless the rival country [pg 453] has a stronger inducement than itself for devoting its labor and capital to the production of the commodity; arising from the fact that by doing so it occasions a greater saving of labor and capital, to be shared between itself and its customers—a greater increase of the aggregate produce of the world. The underselling, therefore, though a loss to the undersold country, is an advantage to the world at large; the substituted commerce being one which economizes more of the labor and capital of mankind, and adds more to their collective wealth, than the commerce superseded by it. The advantage, of course, consists in being able to produce the commodity of better quality, or with less labor (compared with other things); or perhaps not with less labor, but in less time; with a less prolonged detention of the capital employed. This may arise from greater natural advantages (such as soil, climate, richness of mines); superior capability, either natural or acquired, in the laborers; better division of labor, and better tools, or machinery. But there is no place left in this theory for the case of lower wages. This, however, in the theories commonly current, is a favorite cause of underselling. We continually hear of the disadvantage under which the [American] producer labors, both in foreign markets and even in his own, through the lower wages paid by his foreign rivals. These lower wages, we are told, enable, or are always on the point of enabling, them to sell at lower prices, and to dislodge the [American] manufacturer from all markets in which he is not artificially protected.
It will be remembered that, as we have before seen, international trade, in actual practice, depends on comparative prices within the same country (even though the exporter may not consciously make a comparison). We send wheat abroad, because it is low in price relatively to certain manufactured goods; that is, we send the wheat, but we do not send the manufactured goods. But, so far, this is considering only the comparative prices in the same country. Yet we shall fail to realize in actual practice the application of the above principles, when we use the terms prices and money, if we do not admit that there is in the matter of underselling a comparison, also, between the absolute price of the goods in one country and the absolute [pg 454] price of the same goods in the competing country. For example, wheat is not shipped to England unless the price is lower here than there. If India or Morocco were to send wheat into the English market in close competition with the United States, and the price were to fall in London, it would mean that, if we continued our shipments of wheat to England, we must part with our wheat at a less advantage in the international exchange. In the illustration already used, we must, for example, offer more than seventeen bushels of wheat for ten cwts. of iron. The fall in the price of wheat, without any change in that of iron, implies the necessity of offering a greater quantity of wheat for the same quantity of iron, perhaps nineteen or twenty bushels for ten cwts. of iron. If the price went so low as to require twenty-one bushels to pay for ten cwts. of iron, then we should be entirely undersold; and the price here as compared with the price in London would be an indication of the fact. So that the comparison of prices here with prices abroad is merely a register of the terms at which our international exchanges are performed; but not the cause of the existence of the international trade. If the price falls so low in a foreign market that we can not sell wheat there, it simply means that we have reached in the exchange ratios the limit of our comparative advantages in wheat and iron; so that we are obliged to offer twenty or more bushels of wheat for ten cwts. of iron.