THE TRANSFER PROBLEM ONCE AGAIN

Abstract

This chapter discusses the transfer problem. As a transfer would result in a larger volume of goods being shipped from the paying to the receiving country, it would raise freight rates from the paying to the receiving country but lower them for goods moving in the opposite direction, on account of the additional ballast traffic. The result would be a rise in the price spread between the two countries with respect to commodities moving from the paying to the receiving country and a fall in the price spread for commodities moving in the opposite direction. According to Wicksell, this would entail a rise in the prices of both import and export goods in the receiving country and a fall of both of these prices in the paying country, with no presumption as to the effects on the terms of trade. The approach adopted here is the classical one in which full employment is assumed to be maintained in both countries, rather than the approach of post-Keynesian employment theory which was fully and definitively treated by Metzler.