Commerce Rests Upon Comparative Needs and Supplies

A second fundamental economic doctrine is that international commerce rests upon the comparative needs and supplies of the trading countries, or to use the technical expression, on the conditions of comparative cost.

A simple illustration of comparative cost may be found in the case of a mechanical engineer who employs a man to care for his furnace. He could save this money by attending to his furnace himself, yet he prefers to leave the furnace in charge of the man, because it pays better in the end for him to attend to his technical business and leave the furnace in charge of someone else. He gains in that way more than he loses.

In this law of comparative costs and of reciprocal demands lies to a great extent the explanation of the phenomenon of foreign trade. In applying this law, however, and in studying the actual effects of foreign trade in any particular country, it is necessary to consider that country independently of the rest of the commercial world, otherwise one is apt to arrive at an erroneous conclusion. Whether or not France sends any silk to Russia, and the quantity she may send, depends upon the prices obtainable in other countries. These prices, in turn, depend upon the causes, both general and special, which operate throughout the commercial world. In other words, the markets of the world are interdependent, and the collective influence of all effects the prices in each particular locality or market. This fact must never be forgotten in studying the prices and other conditions in any market.

The growth of wealth and population increases the quality and quantity of demand, and the growth of labor and capital increases the supply. The changes in the conditions of supply are usually the changes in the rates of wages and in the proportionate increase of profits, which are the universal elements in the cost of production.

When foreign goods sold in home markets are of a kind which can be produced at home, it shows that either the foreign goods are cheaper or else the home producers did not produce the quantity or kind needed. When the foreign force of supply has spent itself and competition sets in, the profits tend to vanish and the greater the competition the more fluctuating will be the price. In a highly organized market the prices for the same commodity are more uniform; in a primitive or disorganized market there is always a marked variation of price for practically the same commodity.

Conditions of Society Determine Status of Market

A third fundamental maxim of foreign trade is that the conditions of society in a given country are the most influential factor in determining the status of the market in that country. For this reason one cannot correctly pass upon a trade situation in any one country without a painstaking and careful study of the political, economic, and social forces which operate there and which translate into commercial forces the feelings of the individuals who compose these social groups. A knowledge of conditions in a given country is indispensable to commercial success therein. The need of studying the market's psychology and structure, therefore, is manifest.

While the determining factor of trade is the rate of profit obtained, the basis for the demand for an article is the utility assigned thereto. Estimates of utility may change according to changes in fashion, education, morality, or law, and it is necessary to be constantly in touch with the varying conditions. in the trading country including not only the prevailing customs but the commercial ethics of the community as well.

Structure of the Market

It should be clear that anyone venturing into the foreign. field must give close study to the organization and structure of

each particular market; that he must learn what classes of dealers can handle his goods to advantage, and know the function and characteristics of each class.

One important difference between foreign and domestic trade is that in foreign trade it is for the most part the dealer, not the consumer, who originates the demand. For this reason the dealer-and with him should be included the commission man and the jobber-is a far more important trade factor in foreign than in domestic trade. At home the consumer will generally buy the article which is well advertised; abroad the dealer is usually the chief factor in the introduction as well as in the distribution of new merchandise. He is the local missionary of the world's trade, and the medium through which the consumer is educated in the value of a new or a different kind of merchandise. It is sometimes well for the exporter who cannot undertake an expensive campaign for the introduction of his goods, to make arrangements with the local jobber in the foreign country whereby he assumes the expense.

There are many strange details of commercial structure. In China, for example, foreign business is transacted exclusively through a third party called a fostook or comprador, who is a relic of the old ollo or hong custom, and who is a character that enters into every possible phase of life in China. He is the most important person for an importer or an exporter to know, for he takes the place of the commercial traveler, buyer, advertising agent, credit man-in fact, he does everything. His connections and his influence with local merchants are unlimited, which makes him the controlling lever in the trade of China where precedent and superstition are still inseparable elements in commercial as well as in social life.

Psychology of the Market

Perhaps the most important element of the psychology of the market is the attitude of the peoples or the governments of

two trading countries toward each other. Nearly every country has certain favored nations with which it prefers to trade. The reasons for this distinction are numerous and sometimes very complicated-tradition, similarity of language, long-lasting political friendship, religious kinship. These factors,

which scarcely enter into domestic commerce, where he who has the best goods and the lowest prices generally wins, play an important part in international trade.

In every country, trade is to a great extent regulated by financial interests. If the people of one nation have large investments in a certain foreign country, their financial hierarchy comes in close touch with that country's banking and other moneyed interests. These influences stimulate the extension of trade between the two countries because both are greatly benefited thereby. Since all trade is a mere exchange of commodities, one kind paying for another, the people who buy much will also sell much. Ships cannot afford to go out full to come back empty.

Reciprocity Significant

Reciprocity is, of course, significant in the psychology of foreign trade. The people who think only of their own side of life never get very far in international dealings. As a rule a man is more wary of a foreigner than he is of a person. of his own nationality; and he is likely to scrutinize every act of a foreigner who seeks business connections with him. Neither is he ever slow to note any mercenary propensities. It is most important to bear in mind that he who takes must also be able to give, for one cannot get something for nothing if that something is worth having. A foreign customer must be treated with at least as much consideration as the domestic customer. To consider only the immediate and narrow personal advantage is absurd and never pays in the end. Every nation has its susceptibilities. Nations have the same likes and

The

dislikes as individuals and the trader must learn them. admiration or sympathy of the people of one nation for the people of another is a great commercial advantage. So is national prestige.

The theory that foreign trade is the result of differences in comparative cost is limited in its application by various hindrances to trade and by the competition of different countries. On the other hand, the differences between foreign and domestic trade should not be too much emphasized. Unless it is clearly perceived that the movement toward an increase of trade relations between nations is accounted for in the same way as the growth of domestic trade, serious mistakes are likely to be made in interpreting the facts in foreign trading and in judging matters of commercial policy.

Civilizing Influences of International Trade

International trade has great humanitarian, political, educational, and social, as well as commercial aspects, for the more it is developed the more closely will the nations become knit together and the more alike will be their civilizations and their ideas. As time goes on, the conditions of international trade will resemble more and more the trade conditions existing within the principal civilized countries. If the world is ever to become a federation of states devoted to the pursuit of peace and happiness it will be largely due to the development of international commerce, through the basic understanding of nation by nation and the vigorous, healthy interchange of markets, resulting in international structural growth.