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Graham’s Theory of International Values Revisited: A Ricardian Trade Model with Link Commodities

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  • Sato, Hideo
  • Assistant, JHET

Abstract

F. D. Graham (1890–1949) presented an innovative multi-country, multi-commodity trade model that attached great importance to link commodities and quantity adjustments, not perfect specializations and price adjustments as emphasized by J. S. Mill and A. Marshall. However, due of some shortcomings, this model was not sufficiently understood and has been forgotten. This study reconstructs Graham’s theory of international values by rectifying the shortcomings. Through this reconstruction, the following is clarified. First, in multi-country, multi-commodity trade models, the existence of link commodities is general and perfect specializations seldom appear; therefore, quantity adjustments are normally performed in the face of demand shifts. Second, notwithstanding unchanging sectoral productivity at a national level, national wage rates can vary greatly according to the patterns of the international division of labor. Third, while the domestic relative wage rate increases with an increase in a home country’s productivity of link commodities, it does not increase with an increase in the productivity of commodities produced only in the home country.

Suggested Citation

  • Sato, Hideo & Assistant, JHET, 2021. "Graham’s Theory of International Values Revisited: A Ricardian Trade Model with Link Commodities," OSF Preprints h84yp, Center for Open Science.
    • Handle: RePEc:osf:osfxxx:h84yp
    DOI: 10.31219/osf.io/h84yp
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    References listed on IDEAS

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    1. Krugman, Paul, 1980. "Scale Economies, Product Differentiation, and the Pattern of Trade," American Economic Review, American Economic Association, vol. 70(5), pages 950-959, December.
    2. Leonard Gomes, 1990. "Neoclassical International Economics," Palgrave Macmillan Books, Palgrave Macmillan, number 978-0-230-37155-2, September.
    3. Ronald W. Jones, 1961. "Comparative Advantage and the Theory of Tariffs: A Multi-Country, Multi-Commodity Model," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 28(3), pages 161-175.
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    Cited by:

    1. Hideo Sato, 2022. "A multi‐country, multi‐commodity Ricardian trade model with link commodities and Keynesian unemployment," Metroeconomica, Wiley Blackwell, vol. 73(2), pages 441-465, May.

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