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Chapter 7:
Growth and Trade
Multiple Choice Questions

1. Which of the following is one of the fundamental sources of long-run economic growth?
a. An expansion of foreign GDP
b. An increase in demand for the country’s importable product
c. An improvement in production technologies
d. An expansion in the export of primary commodities
Answer: C
Difficulty: 01 Easy
Blooms: Remember
AACSB: Reflective Thinking
Topic: Balanced Versus Biased Growth
2. In the figure given below, we see an expansion of the production-possibility curve (from
PPC1 to PPC2). The two goods produced are wheat and cloth, which are land-intensive and
labor-intensive respectively. The outward shift of the production-possibility curve shows:
Wheat
PPC2
PPC1
0 Cloth
a. biased growth.
b. balanced growth.
c. a move from a no-trade situation to free trade.
d. a fall in production costs of both the goods.
Answer: A
Difficulty: 01 Easy
Blooms: Remember
1
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3. In the figure given below, we see an expansion of the production-possibility curve (from
PPC1 to PPC2). The two goods produced are wheat and cloth, which are land-intensive and
labor-intensive respectively. The outward shift of the production-possibility curve is likely
the result of:
Wheat
PPC2
PPC1
0 Cloth
a. a fall in average cost of producing cloth.

b. an increase in the price of cloth.
c. an increase in the size of the labor force, the area under cultivation remaining unchanged.
d. an increase in the national amount of usable land, the size of the labor force remaining
unchanged.
Answer: D
Difficulty: 02 Medium
Blooms: Understand
4. Which of the following statements is true?

a. Increases in a country's endowments of land, labor, and capital will lead to long-run
economic growth.
b. Improvements in the technology used in production can lead to increases in current
output levels, but will not affect long-run economic growth.
c. Improvements in production technology do not affect the shape or position of the
production-possibility curve.
d. Biased growth leads to a proportionate shift in the production-possibility curve.
Answer: A
Difficulty: 01 Easy
Blooms: Remember
2
5. In a country that produces only wine and guns, which of the following is least likely to lead
to biased growth?
a. The amount of usable land has increased substantially.
b. The relaxation of migration laws has led to a huge influx of unskilled workers.
c. The technology used to produce guns improves while the technology used to produce
wine does not change.
d. The relative price of guns in the international market changes.
Answer: D
Difficulty: 03 Hard
Blooms: Analyze
AACSB: Analytic
6. The Rybczynski theorem asserts that in a two-good model, and assuming that product prices
stay constant, growth in the endowment of one factor of production with the other factor
remaining unchanged, will result in:
a. an equal increase in the output of both goods.
b. an increase in the output of the good that uses the growing factor intensively and a
decrease in the output of the other good.
c. an increase in the output of both goods but a relatively greater increase in the output of
the good that uses the growing factor intensively.
d. an increase in the output of the good that uses the growing factor intensively, but the
output level of the other good will remain unchanged.
Answer: B
Difficulty: 01 Easy
Blooms: Remember
Topic: Growth in Only One Factor
7. Assume that a capital-abundant country trades only two goods with the rest of the world,
medical equipment and corn. Medical equipment is relatively capital-intensive. According to
the Rybczynski theorem, the relative price of the goods remaining unchanged, an increase in
the country’s endowment of capital will cause the output of medical equipment to _____ and
the output of corn to _____.
a. rise; fall
b. fall; rise
c. rise; remain the same
d. remain the same; fall
Answer: A
Blooms: Understand
3
8. Assume that a large capital-abundant country trades only two goods with the rest of the
world, medical equipment and corn. Medical equipment is relatively capital-intensive. An
increase in the country’s endowment of capital will cause the price of medical equipment
relative to the price of corn to:
a. rise.
b. fall.
c. stay the same.
d. rise at first and then fall.
Answer: B
Difficulty: 01 Easy
Blooms: Remember
9. If trade is consistent with the H-O theory, then growth in a country’s scarce factor of
production will lead to:
a. an increased willingness to trade.
b. balanced growth.
c. a decreased willingness to trade.
d. a deterioration in the country’s terms of trade.
Answer: C
Difficulty: 01 Easy
Blooms: Remember
10. Assume a country produces only wine and guns. Both wine and gun production use land and
labor as their only inputs. Wine production is relatively land-intensive while gun production
is relatively labor-intensive. According to the Rybczynski theorem, a significant rise in
immigration is most likely to lead to:
a. an increase in the production of both wine and guns.
b. an increase in wine production by a greater proportion than the increase in the size of the
labor force due to immigration.
c. an increase in the production of guns by a greater proportion than the increase in the size
of the labor force due to immigration.
d. an increase in wine production by a greater proportion than the increase in the production
of guns.
Answer: C
Blooms: Understand
4
11. The Rybczynski theorem suggests that development of new natural resources in a country:
a. will result in balanced growth.
b. may cause the country to export only manufactured products.
c. will increase output in all sectors of the economy.
d. may cause the manufacturing sector of the country to shrink.
Answer: D
Difficulty: 01 Easy
Blooms: Remember
12. The rapid accumulation of capital and worker skills in the United States in the 1800’s:
a. resulted in an increase in the export of natural resources by the country.
b. made the United States more dependent on imported minerals.
c. made the United States more self-sufficient and led to a reduction in its trade volume.
d. resulted in rapid deindustrialization in the country.
Answer: B
Difficulty: 01 Easy
Blooms: Remember
Topic: Changes in the Country’s Willingness to Trade
13. Assume a country that produces only cloth and paddy. Cloth production requires significant
amounts of labor and capital, but relatively less land. Assume that paddy production requires
relatively less labor and capital, but relatively large amounts of fertile arable land. If there is
an increase in the country's endowments of capital and labor, the Rybczynski theorem would
predict that:
a. the production of both paddy and cloth will increase.
b. the production of cloth will increase, but that of paddy will remain unchanged.
c. the production of cloth will increase, but that of paddy will decline.
d. the production of paddy will increase, but that of cloth will remain unchanged.
Answer: C
Blooms: Understand
5
14. Suppose country A produces two goods, good X and good Y. Production of good X involves
an intensive use of highly skilled workers. However, good Y is a relatively capital-intensive
good. If the country experiences a wave of immigration of highly skilled workers, investment
in physical capital remaining unchanged, the Rybczynski theorem will predict that:
a. the production of good Y will contract.
b. the production of both the goods will expand in the same proportion.
c. the production of good X will contract.
d. the production of both the goods will increase, but increase in good X will be much
higher than increase in good Y.
Answer: A
Blooms: Understand
15. Suppose country X partially specializes in the production of only two goods, food and
clothing. At the initial free trade equilibrium, the country produced 40 units of food and 20
units of clothing. At the same time10 units of food were exported and 10 units of clothing
were imported by country X. Now suppose a technological innovation in country X leads to a
balanced growth while leaving the relative prices of food and clothing unchanged in the
international market. Production of food in country X rises to 50 units and that of clothing
rises to 25 units. If consumption of food, on the other hand, rises to 42 units, we can most
reasonably conclude that the:
a. consumption of clothing rises to 32 units.
b. the size of country X’s trade triangle has increased.
c. country X’s willingness to trade declines.
d. consumers in country X are left worse-off.
Answer: C
Blooms: Understand
16. Suppose country X partially specializes in the production of only two goods, food and
clothing. At the initial free trade equilibrium, the country produced 40 units of food and 20
units of clothing. At the same time10 units of food were exported and 10 units of clothing
were imported by country X. Now suppose a technological innovation in country X leads to a
balanced growth while leaving the relative prices of food and clothing unchanged in the
international market. Production of food in country X rises to 50 units and that of clothing
rises to 25 units. If consumption of food rises to 42 units, the consumption of clothing:
a. rises to 33 units.
b. declines to 25 units.
c. rises to 35 units.
d. declines to less than 20 units.
6
Answer: A
Difficulty: 03 Hard
Blooms: Apply
AACSB: Analytic
17. In international trade jargon, an economy is said to be a large country if:

a. it is a price-taker in the world market.
b. a majority of its production is consumed domestically.
c. a decline in its exports raises the world price of those goods.
d. a decline in its imports does not affect its terms of trade.
Answer: C
Blooms: Understand
Topic: Effects on the Country’s Terms of Trade
18. Suppose a large country experiences economic growth which results in a reduced willingness
to trade. The country’s terms of trade will _____ because the fall in demand for imports will
cause the price of its exports to _____ relative to the price that it has to pay for its imports.
a. worsen; fall
b. improve; rise
c. improve; fall
d. worsen; rise
Answer: B
Difficulty: 01 Easy
Blooms: Remember
19. Suppose a large country experiences economic growth which results in an increased
willingness to trade. The country’s terms of trade will _____ because the increase in demand
for imports will cause the price of its exports to _____ relative to the price that it has to pay
for its imports.
a. worsen; fall
b. improve; rise
c. improve; fall
d. worsen; rise
Answer: A
Difficulty: 01 Easy
Blooms: Remember
7
20. Suppose a small country experiences economic growth which leads to an increased
willingness to trade. The country’s terms of trade will _____ because the prices of its exports
will _____ relative to the price that it has to pay for its imports.
a. worsen; fall
b. improve; not change
c. remain unaffected; not change
d. remain constant; fall
Answer: C
Blooms: Understand
21. Large countries are _____ susceptible to immiserizing growth than small countries because
when large countries expand their exports, their terms of trade _____.
a. less; improve
b. less; worsen
c. more; improve
d. more; worsen
Answer: D
Difficulty: 01 Easy
Blooms: Remember
22. Suppose a labor-abundant country, exporting a labor-intensive good, experiences a

significant increase in its capital stock. This change in endowments can:
a. lead to an immiserizing growth.
b. lead to an increase in the export of labor-intensive goods by the country.
c. lead to a reversal of the country’s trade pattern.
d. lead to reduced growth rates.
Answer: C
Difficulty: 01 Easy
Blooms: Remember
23. Which of the following is most unlikely to lead to a reversal of a country’s trade pattern?
a. Growth in the country’s endowment of the input that is initially scarce
b. A proportionate increase in output in all the sectors of the economy
c. International diffusion of technology
d. Shifting tastes of the country’s consumers
8
Answer: B
Difficulty: 01 Easy
Blooms: Remember
Topic: Technology and Trade
24. Suppose a capital-abundant country experiences a significant increase in its capital stock.
This change in endowments is most likely to lead to:
a. an improvement in the country’s terms of trade.
b. a decreased willingness to trade.
c. an increase in the price of the capital-intensive goods relative to the labor-intensive
goods.
d. an increased willingness to trade.
Answer: D
Blooms: Understand
25. When a small, initially closed country engages in free trade:

a. it always experiences a balanced growth.
b. it experiences a much slower economic growth.
c. it is not likely to suffer from immiserizing growth.
d. its production-possibility curve shifts inward.
Answer: C
Difficulty: 01 Easy
Blooms: Remember
26. Immiserizing growth is most likely to occur when:

a. the import payments of a country decline relative to its export earnings
b. the increase in population exceeds the increase in national income of a country.
c. the benefits of economic growth are not shared equally by all the residents of the country.
d. economic growth leads to a deterioration of a country’s terms of trade.
Answer: D
Difficulty: 01 Easy
Blooms: Remember
9
27. When economic growth in a large country lowers its willingness to trade, it can result in:
a. an improvement in the country’s terms of trade.
b. a biased growth.
c. immiserizing growth.
d. the Dutch Disease.
Answer: A
Difficulty: 01 Easy
Blooms: Remember
28. Suppose country X is one of the largest exporter of coffee in the world. A recent massive
cyclone has destroyed much of the coffee crop in country X and has considerably lowered its
exports. Which of the following is a likely consequence of this disaster?
a. The size of country X’s trade triangle will increase.
b. The price of coffee in the international market will decline.
c. The price of country X’s imports relative to the price of its exports will increase
unambiguously.
d. Country X’s terms of trade will improve.
Answer: D
Blooms: Understand
29. Which of the following conditions is NOT necessary for immiserizing growth to arise in a
country?
a. The country's growth must be strongly biased toward expanding the country's supply of
exports and the increase in exports must be large enough to have a noticeable impact on
world prices.
b. The foreign demand for the country's exports must be price inelastic so that an expansion
in the country's export supply leads to a large drop in the international price of the export
product.
c. Before the growth, the country must be heavily engaged in trade so that the welfare loss
from the decline in the terms of trade is great enough to offset the gains from being able
to produce more.
d. The country must specialize in the production of a single exportable good and import all
the other goods consumed in the economy.
Answer: D
Blooms: Understand
10
30. The figure given below shows a shift in the production-possibility curve of a country from
AB to AC. Here, S1 and C1 are the initial production and consumption points respectively. S 2
and C2, on the other hand, are the final production and consumption points respectively.
Which of the following is illustrated by this figure?
Wheat
Price=1W/C
C
B
S2
S1
C1
C2
Price=0.3W/C
0 A Cloth
a. A small country experiencing a balanced growth

b. A large country experiencing a balanced growth
c. A small country experiencing growth biased toward cloth production
d. A large country experiencing growth biased toward wheat production.
Answer: D
Blooms: Understand
11
and C2, on the other hand, are the final production and consumption points respectively. The
shifts shown in the given figure indicate that:
Wheat
Price=1W/C
C
B
S2
S1
C1
C2
Price=0.3W/C
0 A Cloth
a. the domestic demand for wheat is higher than the demand in the international market.
b. the country can now consume more of both goods.
c. the world price of wheat has increased.
d. the terms of trade for this country have deteriorated.
Answer: D
Blooms: Understand
12
and C2, on the other hand, are the final production and consumption points respectively.
Which of the following is illustrated by this figure?
Wheat
Price=1W/C
C
B
S2
S1
C1
C2
Price=0.3W/C
0 A Cloth
a. The mechanism of reversal in trade pattern

b. The validity of the product cycle hypothesis
c. The immiserizing growth effect in a large country
d. The benefits of trade in a small country
Answer: C
Blooms: Understand
33. The possibility of immiserizing growth can arise when:

a. a large country expands the production of its export-oriented goods.
b. there is a decline in the research and development investments in a large country.
c. the terms of trade of a small country decline due to changes in the rest of the world.
d. the import-competing goods are overproduced in a large country.
Answer: A
Difficulty: 01 Easy
Blooms: Remember
13
34. In Heckscher-Ohlin theory, differences in _____ across countries are considered to be the
basis for comparative advantage.
a. consumer tastes and preferences
b. factor endowments
c. production technologies
d. economic freedom
Answer: B
Difficulty: 01 Easy
Blooms: Remember
35. Which of the following refers to individual efforts by businesses that focus on improvements
in production technologies for existing products and on new production technologies for new
or improved products?
a. Balanced growth
b. Diffusion
c. Import competition
d. Research and development
Answer: D
Difficulty: 01 Easy
Blooms: Remember
36. Technology-based comparative advantage:

a. can help explain how the United States went from being a net exporter of steel to being a
net importer of steel.
b. is totally contradictory to the Heckscher-Ohlin theory of comparative advantage.
c. always results in immiserizing growth.
d. emphasizes that poorer and less industrialized nations cannot compete in world markets
with richer and more industrialized nations.
Answer: A
Difficulty: 01 Easy
Blooms: Remember
14
37. The Heckscher-Ohlin theory suggests that research and development activity is most likely to
be concentrated in countries which:
a. are capital-abundant.
b. are skilled-labor-abundant.
c. specialize in the production of primary commodities.
d. are more self-reliant.
Answer: B
Difficulty: 01 Easy
Blooms: Remember
38. _____ first presented the product cycle hypothesis.

a. Adam Smith
b. David Ricardo
c. Eli Heckscher
d. Raymond Vernon
Answer: D
Difficulty: 01 Easy
Blooms: Remember
39. Which of the following is true of product cycle hypothesis?

a. It explains how a country completely specializes in the production of the good that was
first invented in this country.
b. It ignores the importance of research and development in the improvement of production
technology in a country.
c. It explains how an initial exporter of a good ends up importing the good from other
countries.
d. It assumes that the demands for various commodities in the countries do not change over
time.
Answer: C
Difficulty: 01 Easy
Blooms: Remember
40. Countries that are open to international trade:

a. cannot suffer from immiserizing growth.
b. tend to grow faster than the closed economies.
c. tend to lose out on the benefits of technological diffusion.
d. do not experience biased growth.
15
Answer: B
Difficulty: 01 Easy
Blooms: Remember
True/False Questions
41. Increases in a country’s endowments of factors of production increase current output, but do
not contribute to long-run economic growth.
Answer: FALSE
Difficulty: 01 Easy
Blooms: Remember
42. For a country already engaged in trade, biased growth will essentially lead to an increased
willingness to trade.
Answer: FALSE
Blooms: Understand
43. According to the Rybczynski theorem, in a two-good world, with constant product prices,
growth in a country’s endowment of any one input results in an increase in the production of
the good which does not use this input intensively.
Answer: FALSE
Difficulty: 01 Easy
Blooms: Remember
44. Assume that corn and cloth are each produced using both land and labor in a country. Corn is
relatively land-intensive. If the country experiences an increase in its endowment of labor,
product prices remaining unchanged, the Rybczynski theorem will predict that the production
of corn will decline.
Answer: TRUE
Difficulty: 01 Easy
Blooms: Remember
16
45. In a two-commodity world, balanced growth in a country always decreases its willingness to
trade because the country becomes self-sufficient in the production of both the goods.
Answer: FALSE
Blooms: Understand
46. The impact of economic growth on a country’s willingness to trade is determined solely by
the extent of the shift of its production-possibility curve.
Answer: FALSE
Blooms: Understand
47. The Dutch disease refers to a situation in which new production of a natural resource results
in deindustrialization.
Answer: TRUE
Difficulty: 01 Easy
Blooms: Remember
48. Any change in the volume of export or import by a small country will have no effect on its
terms of trade.
Answer: TRUE
Difficulty: 01 Easy
Blooms: Remember
49. It is usually safer for a large country to subsidize its export-oriented industries rather than the
import-replacing industries.
Answer: FALSE
Blooms: Understand
17
50. Immiserizing growth is the situation in which the expansion of a country's exporting industry
results in an increase in the world price of the exported good and an increase in the economic
welfare of the country.
Answer: FALSE
Difficulty: 01 Easy
Blooms: Remember
51. Economic growth with an increased willingness to engage in international trade will always
improve the economic well-being of a large country.
Answer: FALSE
Blooms: Understand
52. Countries that export a diversified selection of export products do not seem to be at much
risk of experiencing immiserizing growth.
Answer: TRUE
Difficulty: 01 Easy
Blooms: Remember
53. Both the Heckscher-Ohlin theory and comparative advantage based on technological
differences assume that the techniques of production in various countries do not change over
time.
Answer: FALSE
Blooms: Understand
54. New technology developed by a multinational corporation in one of its research facilities in a
leading developed country can be transferred within the corporation to the affiliates in other
developed countries, but not to the affiliates in developing countries.
Answer: FALSE
Blooms: Understand
18
Essay Questions
55. Suppose the United States exports capital-intensive goods like construction equipment to the
rest of the world and imports clothing, a labor-intensive good. Both the goods use capital and
labor as their only inputs. Recently the capital endowment of the U.S. has increased
substantially, but the size of the labor force has remained unchanged.
a. What is the effect of the change in endowment on the shape and position of the production-
possibility curve of the U.S.? Illustrate your answer with the help of a suitable diagram.
POSSIBLE RESPONSE: The increase in the U.S. endowment of capital leads to an unbalanced
growth biased toward the production of construction equipment.
Construction Equipment
S2
S1 C2
C1
0 Clothing
In the figure given above, we see an expansion in the production-possibility curve biased toward
the production of construction equipment, which is capital-intensive.
Blooms: Understand
b. What is the effect of such changes in factor endowment on the actual production quantities
of the two goods in the United States, assuming the product price ratio remains unchanged in
the international market? Explain and illustrate graphically.
POSSIBLE RESPONSE: The unbalanced growth leads to an increased production of

construction equipment and a decreased production of clothing, as illustrated in the figure given
above. In the figure, S1 and C1 are the initial production and consumption points respectively. S 2
and C2 are the final production and consumption points respectively. If the relative price
remaining unchanged, the initial equilibrium production point S1 shifts to S2 after the expansion
19
in the endowment of capital. As the production shifts from S1 to S2, the output of construction
equipment increases and the output of clothing declines.
Blooms: Understand
c. What is the effect of such changes in factor endowment on the United States’ willingness to
trade?
POSSIBLE RESPONSE: The result is an increased willingness to trade for the U.S. If product
prices are unchanged, the U.S. wants to export more construction equipment and import more
clothing.
Blooms: Understand
56. Suppose that country A, a relatively capital-abundant country, experiences further expansion in
its endowment of capital. Explain how this might affect its volume (amount) of trade and its
terms of trade with the rest of the world. Under what conditions (if any) would the economic
well-being of country A decline after the increase in its capital endowment?
POSSIBLE RESPONSE: If the amount of capital in country A increases, the result will be a
biased growth toward the production of capital-intensive goods. As a result of this biased growth,
if product prices are unchanged, then the country will expand its production of capital-intensive
goods and will reduce its production of goods requiring the intensive use of other factors of
production (Rybczynski theorem). The country’s volume of trade will increase provided the
increase in demand for the capital-intensive goods is less than the increase in its production.
If country A is a large country, an increase in its exports will affect the international price of the
capital intensive goods relative to the other goods. If this effect is large enough, the result will be
immiserizing growth, which will cause the country to lose well-being even though the
endowment one of the factors of production has expanded. An increase in exports will drive
down the relative price of country A’s exportable goods in world markets. If the decline in the
country’s terms of trade outweighs the benefits of the extra ability to produce, the country will be
worse off.
Blooms: Understand
20
57. Country X produces two goods, guns and roses, using labor and land. Assume that
production of guns is relatively labor-intensive and production of roses is relatively land-
intensive. Suppose a large number of workers from a neighboring country migrate to country
X. Carefully explain all the predictions of the Rybczynski theorem' about the changes in
output of both guns and roses in country X. Be certain to explain any shifts in resources from
one industry to the other.
POSSIBLE RESPONSE: The immigration of workers to country X causes an increase in the size of
the labor force in this country. The Rybczynski theorem asserts that, if the supply of labor increases,
the supply of land remaining unchanged, the country will expand its production of the labor-
intensive product (guns), and will decrease its production of the land intensive product (roses).
Expansion of the gun industry requires not only greater quantities of labor but also more land.
However, the amount of land available remains constant. This implies that the some of the land will
be withdrawn from the production of roses and will be used in producing guns. As a result of such a
resource transfer, the production of roses will decline. On the other hand, the production of guns
will increase by a greater proportion than the initial increase in the labor supply due to immigration.
Blooms: Understand
58. In the presence of free trade, how are the effects of economic growth different for a large
country than for a small country?
POSSIBLE RESPONSE: If a country is small, then its growth and the subsequent change in its
international trade volumes will have no impact on the international price ratio or its terms of trade.
Small countries gain from growth. Their citizens are able to reach higher community indifference
curves as a result of growth and the expansion of the country’s production possibilities curve. If a
country is large, however, then its growth and willingness to trade might have an impact on the
equilibrium international price ratio. In particular, the change in the international price ratio might
lead to deterioration in the country’s terms of trade. In contrast to the case of a small country, the
effect of growth on the well-being of a large country is ambiguous. If the terms of trade decline a
great deal in response to growth, the well-being of a country may deteriorate. This possibility is
referred to as an immiserizing growth.
Blooms: Understand
21
59. Discuss how openness to trade can influence economic growth in a country.
POSSIBLE RESPONSE: Openness to trade can have an impact on how fast a country’s economy is
growing, how fast the production possibilities of a country are growing over time. As a general
tendency, countries that are more open to trade grow faster. This accelerated growth is due to a
variety of reasons.
First, trade allows the import of new and improved capital goods. By international trade a country is
able to import a better technology that can be used to raise productivity.
Second, and more generally, openness to international activities increases accessibility to
technology developed in other countries. This facilitates the adoption of new technology through
licensing or imitation of these technologies.
Finally, the openness to trade provides pressure on the domestic firms to innovate. This process
involves seeking better technologies to raise their productivity and be more competitive
internationally. Openness to international trade thus can enhance the technology that a country can
use, both by facilitating the diffusion of foreign-developed technology into the country and by
accelerating the domestic development of technology. Furthermore, these increases in the current
technology base can be used to develop additional innovations in the future.
Empirically, there is a strong positive correlation between the growth rate of a country and its
international openness, and this is consistent with theoretical analysis.
Blooms: Understand
60. Explain carefully, with a diagram, the crucial conditions for immiserizing growth to occur. In
particular, discuss the effect of the size of the country, the volume of foreign trade, the type
of growth the country experiences, and foreign demand for the exports of the country.
POSSIBLE RESPONSE: Immiserizing growth can occur when a country’s growth is biased toward
the production of the good which the country exports. If the country is large enough, the additional
supply of this good will cause the international price of this good to decline relative to the prices of
other goods. This effect will be more pronounced the more inelastic is the foreign demand for this
good. Further, the country will stand to lose more from the worsening of the terms of trade the more
this country exports the good.. If the loss from the worsening of the terms of trade exceeds the gain
from being able to produce more, the country experiences immiserizing growth—reduction in the
well-being of the country in spite of the growth in production.
22
Capital-
intensive
good
S2
S1
C1
C2 P1
P2
0 Labor-intensive
In the figure given above we see that a country is experiencing expansion in its capital endowment.
Its production point shifts from S1 to S2. Considering this to be a large country, its willingness to
trade influences the international price ratio (terms of trade) and makes the price line steeper from
P1 to P2. Here the country experiences immiserizing growth. Its economic well-being declines as the
consumption point shifts to a lower community indifference curve, from C1 to C2.
Blooms: Understand
Topic: Effect on the Country’s Terms of Trade
23
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Title: Towards an enduring peace

A symposium of peace proposals and programs 1914-1916
Compiler: Randolph Silliman Bourne
Author of introduction, etc.: Franklin Henry Giddings
Release date: February 26, 2024 [eBook #73048]
Language: English
Original publication: New York: American Association for

International Conciliation, 1916
Credits: Emmanuel Ackerman and the Online Distributed

Proofreading Team at https://www.pgdp.net (This file was
produced from images generously made available by The
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*** START OF THE PROJECT GUTENBERG EBOOK TOWARDS

AN ENDURING PEACE ***
TOWARDS AN
ENDURING PEACE
A SYMPOSIUM OF PEACE
PROPOSALS AND PROGRAMS
1914-1916
COMPILED BY
RANDOLPH S. BOURNE
WITH AN INTRODUCTION BY
FRANKLIN H. GIDDINGS
AMERICAN ASSOCIATION FOR

INTERNATIONAL CONCILIATION
NEW YORK
VAIL-BALLOU COMPANY
BINGHAMTON AND NEW YORK
CONTENTS
PAGE
PART I—PRINCIPLES OF THE SETTLEMENT: ECONOMIC

Problems of Economic Opportunity, by John A. Hobson 3
Trade as a Cause of War, by H. N. Brailsford 9
Economic Imperialism, by H. N. Brailsford 15
The Problem of Diplomacy, by Walter Lippmann 22
Socialists and Imperialism, by William English Walling 33
The Higher Imperialism, from the New Republic 38
PRINCIPLES OF THE SETTLEMENT: POLITICAL
Nationality and the Future, by Arnold J. Toynbee 43
Nationality and Sovereignty, by Arnold J. Toynbee 57
The Governmental Theory, by G. Lowes Dickinson 70
The Way Out of War, by G. Lowes Dickinson 76
Lowes Dickinson’s Plan, from the New Republic 81
The Morrow of the War, by the Union of Democratic Control 86
No Peace Without Federation, by Charles W. Eliot 108
PART II. A LEAGUE OF PEACE
Bases for Confederation, by John A. Hobson 119
Existing Alliances and a League of Peace, by John Bates
Clark 135
Protection of Small Nations, by Charles W. Eliot 143
A League to enforce Peace, by A. Lawrence Lowell 148
The Constitution of a League, by Hamilton Holt 160
Pacifism and the League of Peace, from the New Republic 164
The Economic Boycott, by John A. Hobson 174
Economic Coercion, by Norman Angell 184
World-Organization and Peace, by A. A. Tenney 189
PART III. TOWARDS THE FUTURE
The New Outlook, by Nicholas Murray Butler 203
Above the Battle, by Romain Rolland 205
The New Idealism, by Rudolf Eucken 214
The Future of Patriotism, by Walter Lippmann 217
The Future of Civilization, by A. E. Zimmern 221
Towards the Peace that Shall Last, by Jane Addams and
Others 230
APPENDIX: PEACE PROPOSALS AND PROBLEMS
I International
1. Ford Neutral Conference at Stockholm 243
2. Central Organization for a Durable Peace 247
3. Union of International Associations 248
4. International Bureau of Peace 249
5. International Congress of Women 250
6. Conference of Socialists of Allied Nations 259
7. Conference of Socialists of Neutral Nations 261
II United States
8. League to Enforce Peace 264
9. National Peace Convention 264
10. World Peace Foundation 266
11. American School Peace League 267
12. Women’s Peace Party 268
13. New York Peace Society 270
14. Socialist Party of America 271
15. David Starr Jordan 273
16. Nicholas Murray Butler 275
17. Chamber of Commerce of the United States 276
III Great Britain
18. Union of Democratic Control 277
19. Fabian Society 278
20. Independent Labor Party 296
21. National Peace Council 298
22. Women’s Movement for Constructive Peace 298
23. Australian Peace Alliance 300
24. Charles Roden Buxton 301
25. H. N. Brailsford 302
IV Germany
26. German and Austro-Hungarian Socialists 306
27. “Deutsche Friedensgesellschaft” 306
28. Manifesto by Eighty-eight Professors and
Statesmen 308
29. South German Social Democrats 310
30. German Socialists 310
31. Peace Manifesto of Socialists 311
32. Dr. Bernhard Dernburg 314
33. Prof. L. Quidde 316
34. Ed. Bernstein 317
V France
35. General Confederation of Labor 322
VI Switzerland
36. Swiss Peace Society 323
37. Swiss Committee for Study of Principles of Durable
Treaty of Peace 323
VII Holland
38. Nederlandsche Anti-Oorlog Raad (Dutch Anti-War
Council) 325
VIII Norman Angell on Differential Neutrality for America 326
Index 333
INTRODUCTION
When the storm has gone by and the skies after clearing have
softened, we may discover that a corrected perspective is the result
of the war that we are most conscious of. Familiar presumptions will
appear foreshortened, and new distances of fact and possibility will
lie before us.
Before the fateful midsummer of 1914 the most thoughtful part of
mankind confidently held a lot of agreeable presumptions which
undoubtedly influenced individual and collective conduct. The more
intangible of them were grouped under such name symbols as
“idealism,” “humanitarian impulse,” “human brotherhood,” “Christian
civilization.” The workaday ones were pigeonholed under the rubric:
“enlightened economic interest.” Between the practical and the
aspirational were distributed all the excellent Aristotelian middle
course presumptions of the “rule of reason” order.
And why not? The nineteenth century had closed in a blaze of
scientific glory. By patient inductive research the human mind had
found out nature’s way on earth and in the heavens, and with daring
invention had turned knowledge to immediate practical account. The
struggle for existence had become a mighty enterprise of progress.
Steam and electricity had brought the utmost parts of the world
together. Upon substantial material foundations the twentieth century
would build a world republic, wherein justice should apportion
abundance.
Upon presumption we reared the tower of expectation.
Yet on the horizon we might have seen—some of us did see—a
thickening haze and warning thunderheads. Not much was said
about them, but to some it seemed that the world behaved as if it felt
the tension of a rising storm. With nervous eagerness the nations
pushed their way into the domains of the backward peoples. They
sought concessions, opportunities for investment, command of
resources, exclusive trade, spheres of influence. Private negotiations
were backed by diplomacy, and year after year diplomacy was
backed by an ever more impressive show of naval and military
power.
But we did not believe that the Great War impended. There would
still be restricted wars here and there of course, but more and more
they could be prevented. The human mind that had mastered
nature’s way could master and control the ways of man. Economic
interest would bring its resistless strength to bear against the mad
makers of the wastes of war. A sensitive conscience would revolt
against the cruelties of war. Reason, which had invented rules and
agencies to keep the peace within the state, would devise tribunals
and procedures to substitute a rational adjustment of differences for
the arbitrament of war between states.
The world has recovered from disaster before now, it will recover
again. Presumptions that disappointed have been reexamined and
brought into truer drawing. Expectation has been more broadly built,
it will be more broadly built again.
There is conscience in mankind, and the war has sublimely
revealed it, as it has revealed also undreamed of survivals of
faithlessness and cruelty. The presumption of rational control in
human affairs has been foreshortened, but not painted out. In the
background stand forth as grim realities, forces of fear, distrust, envy,
ignorance, and hate that we had thought were ghosts. Conscience is
as strong and as sensitive as we believed it to be; reason is as
effective as we presumed; but the forces arrayed against them we
now see are mightier than we knew. So now we ask, By what power
shall conscience and reason be reinforced, and the surviving forces
of barbarism be driven back?
There is but one answer left, all others have been shot to pieces.
Conscience and reason are effective when they organize material
energies, not when they dissipate themselves in dreams.
Conscience and reason must assemble, coördinate, and bring to
bear the economic resources and the physical energies of the
civilized world to narrow the area and to diminish the frequency of
war.
But how? General presumptions will not do this time. There must
be a specific plan, concrete and practical; a specific preparedness, a
specific method. And what is more, plan, preparedness, method
must be drawn forth from the situation as the war makes and leaves
it, not imposed upon it. They must be a composition of forces now in
operation.
There were academic plans aplenty for the creation of pacific
internationalism before the war began. The bankers had invented
theirs; the socialists, the conciliationists, and the international
lawyers respectively had invented theirs. The free traders, first in the
field, had not lost hope.
It would be foolish to let ourselves think in discouragement that all
these efforts to organize “the international mind” were idle. They
were not ineffective. They did not organize the international mind
adequately, much less did they reform its habits, but they quickened
it; they organized it in part, they pulled it together enough to make it
powerful for the work yet to be done.
What we have to face, then, is not the extinction or abandonment
of internationalism, but the fact that the ideal, the all-embracing and
thoroughly rational internationalism lies far in the future, and that
before it can be attained we must have that partial internationalism
which is practically the same thing as the widening of nationalism
that is achieved when nations coöperate in leagues or combine in
federations. The league of peace may be academic or it may soon
stand forth as a tremendous piece of realism, we do not know which,
but the forces that are holding many of the nations together in
military coöperation now are present realities, and they will be
realities after the military war is over. There will still be tariffs, but the
areas within which tariff barriers will no longer be maintained will be
immensely widened. Beyond these areas will be, as now, various
arrangements of reciprocity. In like manner, there will be a
determination on the part of the coöperating nations to stand
together for the enforcement of international agreements and to
discipline a law-breaking state that would needlessly resort to arms.
The internationalism of commerce, of travel, of communication, of
intellectual exchange and moral endeavor will continue to grow
throughout the world, but in addition there will be the more definite,
the more concrete internationalism of the nations that agree in
making common cause for the attainment of specific ends.
Within this relatively restricted internationalism there will be, there
is now, a certain yet more definite aggregation of peoples, interests,
and traditions upon which rests a great and peculiar moral
responsibility. The English-speaking people of the world are together
the largest body of human beings among whom a nearly complete
intellectual and moral understanding is already achieved. They have
reached high attainments in science and the arts, in education, in
social order, in justice. They are highly organized, they cherish the
traditions of their common history. To permit anything to endanger
the moral solidarity of this nucleus of a perfected internationalism
would be a crime unspeakable. To strengthen it, to make it one of the
supreme forces working for peace and humanity is a supreme
obligation.
Franklin H. Giddings.
CONCERNING THE AUTHORS
QUOTED
Jane Addams has been head resident at Hull House in Chicago for
many years. She is widely known for her leadership in the social
movement, and particularly for her connection with the
International Congress of Women at The Hague.
Norman Angell is the author of “The Great Illusion,” and one of the
most brilliant of the workers in the cause of peace. He is also
the author of “International Polity,” “Arms and Industry,” and “The
World’s Highway.”
Ed. Bernstein is one of the leaders of the German Social Democracy
of the revisionist wing.
H. N. Brailsford is a prominent English traveler, correspondent, and
essayist, and one of the most illuminating writers on world-
problems. His books include “The War of Steel and Gold,”
“Shelley, Godwin and their Circle.”
Nicholas Murray Butler is President of Columbia University, Acting
Director of the Division of Intercourse and Education of the
Carnegie Endowment for International Peace and Chairman of
the American Association for International Conciliation.
Charles Roden Buxton is a prominent English Liberal, and member
of the Union for Democratic Control.
John Bates Clark is Director of the Division of Economics and
History of the Carnegie Endowment for International Peace and
Professor of Political Economy at Columbia University.
Bernhard Dernburg is the German ex-Minister of Colonies, who
spent some time in America at the beginning of the war as semi-
official spokesman for German opinion.
Charles W. Eliot is President Emeritus of Harvard University, and a
leader in the peace movement.
Rudolf Eucken is one of the most widely-known of living German
philosophers. He visited America in 1913.
G. Lowes Dickinson of Cambridge University, England, is author of
“Letters of a Chinese Official,” “Justice and Liberty,” “A Modern
Symposium,” etc.
Franklin H. Giddings is Professor of Sociology at Columbia
University.
John A. Hobson is one of the best-known English economists, the
author of “The Rise of Modern Capitalism,” “The Science of
Wealth,” “The Industrial System,” “Towards International
Government,” etc.
Hamilton Holt is managing editor of The Independent.
Paul U. Kellogg is an editor of the Survey in New York.
Walter Lippmann is one of the most brilliant of the younger American
publicists, an editor of the New Republic, and author of “A
Preface to Politics,” “Drift and Mastery,” and “The Stakes of
Diplomacy.”
A. Lawrence Lowell is President of Harvard University.
Romain Rolland is the author of “Jean-Christophe.” His attitude on
the war has forced his exile from France to Geneva. His
eloquent book “Above the Battle” expresses the emotion of a
cosmopolitan soul confronted with the madness of a world-war.
Prof. L. Quidde was one of the leading German pacifists before the
war.
A. A. Tenney is assistant Professor of Sociology at Columbia
University.
Arnold J. Toynbee is the son-in-law of Prof. Gilbert Murray, and the
author of “Nationality and the War,” and “Greek Policy Since
1882.” He is one of the most brilliant students of problems of
nationality.
Lillian Wald is head-worker at the Henry Street Settlement in New
York City.
William English Walling is a prominent American Socialist, editor of
the New Review, and author of “Socialists and the War,” etc.
Alfred E. Zimmern is in the English Education service, and is author
of “The Greek Commonwealth.”
PREFACE
The aim of this book is to present a discussion of some of the
most hopeful and constructive suggestions for the settlement of the
war on terms that would make for a lasting peace. The selections are
taken from books, magazines, manifestoes, programs, etc., that
have appeared since the beginning of the war. Part I contains a
discussion of the general principles of a settlement, economic and
political. Part II contains the more concrete suggestions for the
constitution of a definite League of Peace. Part III presents some of
the reconstructive ideals—“Towards the Future”—as voiced by
writers in the different countries. In the Appendix are collected
definite programs for peace put forward by associations and
individuals, international organizations, etc., in this country, Great
Britain, Germany, France, Holland, Denmark and Sweden, and
Switzerland.
The books quoted form, it is believed, an indispensable library for
the understanding of international questions:
“Nationality and the War,” by Arnold J. Toynbee. New York: E. P.
Dutton and Co.
“Towards International Government,” by John A. Hobson.
“The Stakes of Diplomacy,” by Walter Lippmann. New York: Henry
Holt and Co.
“The Road Toward Peace,” by Charles W. Eliot. Boston: Houghton
Mifflin Co.
“The War of Steel and Gold,” by H. N. Brailsford. New York:
Macmillan.
“The War and Democracy,” by A. E. Zimmern and others. New York:
Macmillan.
“The World’s Highway,” by Norman Angell. New York: Geo. H. Doran
& Co.
PART I
PRINCIPLES OF THE SETTLEMENT
PART I. PRINCIPLES OF THE SETTLEMENT:
ECONOMIC
PROBLEMS OF ECONOMIC OPPORTUNITY
The growing dependence of modern civilized and Most international
thickly populated countries for the necessaries of quarrels have
economic origin.
life and industry, for commercial profits, and for The present war
gainful investments of capital upon free access to produced by
other countries, especially to countries differing economic
antagonisms.
from themselves in climate, natural resources, and
degree of economic development, is of necessity a consideration of
increasing weight in the foreign policy of to-day. Every active
industrial or commercial nation is therefore fain to watch and guard
its existing opportunities for foreign trade and investment, and to
plan ahead for enlarged opportunities to meet the anticipated future
needs of an expanding trade and a growing population. It views with
fear, suspicion, and jealousy every attempt of a foreign country to
curtail its liberty of access to other countries and its equal
opportunities for advantageous trade or exploitation. The chief
substance of the treaties, conventions, and agreements between
modern nations in recent times has consisted in arrangements about
commercial and financial opportunities, mostly in countries outside
the acknowledged control of the negotiating parties. The real origins
of most quarrels between such nations have related to tariffs,
railway, banking, commercial, and financial operations in lands
belonging to one or other of the parties, or in lands where some
sphere of special interest was claimed. Egypt, Morocco, Persia, Asia
Minor, China, Congo, Mexico, are the most sensitive spots affecting
international relations outside of Europe, testifying to the
predominance of economic considerations in foreign policy. The
stress laid upon such countries hinges in the last resort upon the
need of “open doors” or upon the desire to close doors to other
countries. These keenly felt desires to safeguard existing foreign
markets for goods and capital, to obtain by diplomatic pressure or by
force new markets, and in other cases to monopolize markets, have
everywhere been the chief directing influences in foreign policy, the
chief causes of competing armaments, and the permanent
underlying menaces to peace. The present war, when regard is had
to the real directing pressure behind all diplomatic acts and

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Multiple Choice Questions

a. a fall in average cost of producing cloth.

4. Which of the following statements is true?

17. In international trade jargon, an economy is said to be a large country if:

22. Suppose a labor-abundant country, exporting a labor-intensive good, experiences a

25. When a small, initially closed country engages in free trade:

26. Immiserizing growth is most likely to occur when:

a. A small country experiencing a balanced growth

a. The mechanism of reversal in trade pattern

33. The possibility of immiserizing growth can arise when:

36. Technology-based comparative advantage:

38. _____ first presented the product cycle hypothesis.

39. Which of the following is true of product cycle hypothesis?

40. Countries that are open to international trade:

POSSIBLE RESPONSE: The unbalanced growth leads to an increased production of

Title: Towards an enduring peace

Compiler: Randolph Silliman Bourne

Author of introduction, etc.: Franklin Henry Giddings

Release date: February 26, 2024 [eBook #73048]

Original publication: New York: American Association for

Credits: Emmanuel Ackerman and the Online Distributed

*** START OF THE PROJECT GUTENBERG EBOOK TOWARDS

AMERICAN ASSOCIATION FOR

PART I—PRINCIPLES OF THE SETTLEMENT: ECONOMIC

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