(eBook PDF) International Trade:

Theory and Policy 10th Edition

Visit to download the full and correct content document:
https://ebooksecure.com/download/ebook-pdf-international-trade-theory-and-policy-1
0th-edition/
  ■  vii

Brief Contents
Contents ix
Preface xv
1 Introduction 1
Part 1 International Trade Theory 10
2 World Trade: An Overview 10
3 Labor Productivity and Comparative Advantage:
The Ricardian Model 24
4 Specific Factors and Income Distribution 51
5 Resources and Trade: The Heckscher-Ohlin Model 84
6 The Standard Trade Model 118
7 External Economies of Scale and the International
Location of Production 145
8 Firms in the Global Economy: Export Decisions,
Outsourcing, and Multinational Enterprises 164
Part 2 International Trade Policy 206
9 The Instruments of Trade Policy 206
10 The Political Economy of Trade Policy 236
11 Trade Policy in Developing Countries 275
12 Controversies in Trade Policy 290
Mathematical Postscripts 313
Postscript to Chapter 5: The Factor-Proportions Model....................................................... 313
Postscript to Chapter 6: The Trading World Economy.......................................................... 317
Postscript to Chapter 8: The Monopolistic Competition Model............................................ 325
Index 327
Credits 336

vii
This page intentionally left blank
Contents
Preface ................................................................................................................................ xv

1 Introduction 1
What Is International Economics About?................................................................................3
The Gains from Trade ..............................................................................................................4
The Pattern of Trade ................................................................................................................5
How Much Trade? ....................................................................................................................5
Balance of Payments.................................................................................................................6
Exchange Rate Determination..................................................................................................6
International Policy Coordination ............................................................................................7
The International Capital Market.............................................................................................8
International Economics: Trade and Money............................................................................8

Part 1 International Trade Theory 10

2 World Trade: An Overview 10

Who Trades with Whom?...................................................................................................... 10
Size Matters: The Gravity Model............................................................................................ 11
Using the Gravity Model: Looking for Anomalies.................................................................. 13
Impediments to Trade: Distance, Barriers, and Borders.......................................................... 14
The Changing Pattern of World Trade.................................................................................. 16
Has the World Gotten Smaller?............................................................................................... 16
What Do We Trade?................................................................................................................ 18
Service Offshoring................................................................................................................... 19
Do Old Rules Still Apply?..................................................................................................... 21
Summary.............................................................................................................................. 22

3 Labor Productivity and Comparative Advantage:

The Ricardian Model 24
The Concept of Comparative Advantage ............................................................................... 25
A One-Factor Economy........................................................................................................ 26
Relative Prices and Supply...................................................................................................... 28
Trade in a One-Factor World................................................................................................ 29
Determining the Relative Price after Trade ............................................................................. 30
box: Comparative Advantage in Practice: The Case of Babe Ruth......................................... 33
The Gains from Trade............................................................................................................. 34
A Note on Relative Wages....................................................................................................... 35
box: The Losses from Nontrade............................................................................................ 36
Misconceptions about Comparative Advantage...................................................................... 37
Productivity and Competitiveness........................................................................................... 37
box: Do Wages Reflect Productivity?.................................................................................... 38
The Pauper Labor Argument.................................................................................................. 38
Exploitation............................................................................................................................ 39
Comparative Advantage with Many Goods............................................................................ 40
Setting Up the Model ............................................................................................................. 40

ix
x Contents

Relative Wages and Specialization........................................................................................... 40

Determining the Relative Wage in the Multigood Model........................................................ 42
Adding Transport Costs and Nontraded Goods ..................................................................... 44
Empirical Evidence on the Ricardian Model.......................................................................... 45
Summary.............................................................................................................................. 48

4 Specific Factors and Income Distribution 51

The Specific Factors Model .................................................................................................. 52
box: What Is a Specific Factor?............................................................................................ 53
Assumptions of the Model ..................................................................................................... 53
Production Possibilities........................................................................................................... 54
Prices, Wages, and Labor Allocation....................................................................................... 57
Relative Prices and the Distribution of Income ...................................................................... 61
International Trade in the Specific Factors Model................................................................. 63
Income Distribution and the Gains from Trade...................................................................... 64
The Political Economy of Trade: A Preliminary View ........................................................... 67
Income Distribution and Trade Politics................................................................................... 68
case study: Trade and Unemployment................................................................................. 68
International Labor Mobility................................................................................................ 70
case study: Wage Convergence in the Age of Mass Migration ............................................ 72
case study: Immigration and the U.S. Economy.................................................................. 73
Summary.............................................................................................................................. 76
Appendix: Further Details on Specific Factors ...................................................................... 80
Marginal and Total Product.................................................................................................... 80
Relative Prices and the Distribution of Income ...................................................................... 81

5 Resources and Trade: The Heckscher-Ohlin Model 84

Model of a Two-Factor Economy.......................................................................................... 85
Prices and Production............................................................................................................. 85
Choosing the Mix of Inputs.................................................................................................... 89
Factor Prices and Goods Prices .............................................................................................. 90
Resources and Output............................................................................................................. 92
Effects of International Trade between Two-Factor Economies ............................................. 94
Relative Prices and the Pattern of Trade ................................................................................. 94
Trade and the Distribution of Income .................................................................................... 96
case study: North-South Trade and Income Inequality ....................................................... 97
case study: Skill-Biased Technological Change and Income Inequality ............................... 99
Factor-Price Equalization ..................................................................................................... 102
Empirical Evidence on the Heckscher-Ohlin Model ............................................................ 103
Trade in Goods as a Substitute for Trade in Factors: Factor Content of Trade .................... 104
Patterns of Exports between Developed and Developing Countries ..................................... 107
Implications of the Tests....................................................................................................... 109
Summary............................................................................................................................ 110
Appendix: Factor Prices, Goods Prices, and Production Decisions ...................................... 114
Choice of Technique............................................................................................................. 114
Goods Prices and Factor Prices ............................................................................................ 115
More on Resources and Output............................................................................................ 117

6 The Standard Trade Model 118

A Standard Model of a Trading Economy........................................................................... 119
Production Possibilities and Relative Supply......................................................................... 119
Relative Prices and Demand ................................................................................................. 120
 Contents xi

The Welfare Effect of Changes in the Terms of Trade .......................................................... 123

Determining Relative Prices.................................................................................................. 124
Economic Growth: A Shift of the RS curve.......................................................................... 124
Growth and the Production Possibility Frontier.................................................................... 126
World Relative Supply and the Terms of Trade..................................................................... 126
International Effects of Growth............................................................................................ 129
case study: Has the Growth of Newly Industrializing Countries
Hurt Advanced Nations?................................................................................................. 129
Tariffs and Export Subsidies: Simultaneous Shifts in RS and RD........................................ 132
Relative Demand and Supply Effects of a Tariff................................................................... 132
Effects of an Export Subsidy................................................................................................. 133
Implications of Terms of Trade Effects: Who Gains and Who Loses?................................... 134
International Borrowing and Lending.................................................................................. 135
Intertemporal Production Possibilities and Trade.................................................................. 135
The Real Interest Rate........................................................................................................... 136
Intertemporal Comparative Advantage................................................................................. 138
Summary............................................................................................................................ 138
Appendix: More on Intertemporal Trade............................................................................. 142

7 External Economies of Scale and the International

Location of Production 145
Economies of Scale and International Trade: An Overview.................................................. 146
Economies of Scale and Market Structure........................................................................... 147
The Theory of External Economies..................................................................................... 148
Specialized Suppliers.......................................................................................................... 148
Labor Market Pooling........................................................................................................ 149
Knowledge Spillovers.......................................................................................................... 150
External Economies and Market Equilibrium....................................................................... 151
External Economies and International Trade....................................................................... 152
External Economies, Output, and Prices............................................................................... 152
External Economies and the Pattern of Trade....................................................................... 153
box: Holding the World Together........................................................................................ 155
Trade and Welfare with External Economies......................................................................... 156
Dynamic Increasing Returns................................................................................................. 157
Interregional Trade and Economic Geography..................................................................... 158
box: Tinseltown Economics................................................................................................. 160
Summary............................................................................................................................ 161

8 Firms in the Global Economy: Export Decisions,

Outsourcing, and Multinational Enterprises 164
The Theory of Imperfect Competition................................................................................. 165
Monopoly: A Brief Review................................................................................................... 166
Monopolistic Competition.................................................................................................... 168
Monopolistic Competition and Trade.................................................................................. 173
The Effects of Increased Market Size.................................................................................... 173
Gains from an Integrated Market: A Numerical Example..................................................... 174
The Significance of Intra-Industry Trade.............................................................................. 178
case study: Intra-Industry Trade in Action: The North American Auto Pact
of 1964 and the North American Free Trade Agreement (NAFTA) ................................. 180
Firm Responses to Trade: Winners, Losers, and Industry Performance................................ 181
Performance Differences across Producers............................................................................ 182
The Effects of Increased Market Size.................................................................................... 184
Trade Costs and Export Decisions....................................................................................... 185
xii Contents

Dumping............................................................................................................................. 188
case study: Antidumping as Protectionism........................................................................ 189
Multinationals and Outsourcing.......................................................................................... 190
case study: Patterns of Foreign Direct Investment Flows Around the World...................... 190
The Firm’s Decision Regarding Foreign Direct Investment................................................... 194
Outsourcing.......................................................................................................................... 195
case study: Shipping Jobs Overseas? Offshoring and Unemployment
in the United States........................................................................................................ 197
Consequences of Multinationals and Foreign Outsourcing................................................... 199
Summary............................................................................................................................ 200
Appendix: Determining Marginal Revenue.......................................................................... 205

Part 2 International Trade Policy 206

9 The Instruments of Trade Policy 206

Basic Tariff Analysis.......................................................................................................... 206
Supply, Demand, and Trade in a Single Industry.................................................................. 207
Effects of a Tariff.................................................................................................................. 209
Measuring the Amount of Protection................................................................................... 210
Costs and Benefits of a Tariff............................................................................................. 212
Consumer and Producer Surplus........................................................................................... 212
Measuring the Costs and Benefits......................................................................................... 214
box: Tariffs for the Long Haul............................................................................................ 216
Other Instruments of Trade Policy...................................................................................... 217
Export Subsidies: Theory...................................................................................................... 217
case study: Europe’s Common Agricultural Policy............................................................ 218
Import Quotas: Theory......................................................................................................... 220
case study: An Import Quota in Practice: U.S. Sugar....................................................... 221
Voluntary Export Restraints................................................................................................. 224
case study: A Voluntary Export Restraint in Practice....................................................... 224
Local Content Requirements............................................................................................... 225
box: Bridging the Gap........................................................................................................ 226
Other Trade Policy Instruments............................................................................................ 227
The Effects of Trade Policy: A Summary............................................................................ 227
Summary............................................................................................................................ 228
Appendix: Tariffs and Import Quotas in the Presence of Monopoly..................................... 232
The Model with Free Trade................................................................................................... 232
The Model with a Tariff........................................................................................................ 233
The Model with an Import Quota......................................................................................... 234
Comparing a Tariff and a Quota........................................................................................... 234

10 The Political Economy of Trade Policy 236

The Case for Free Trade..................................................................................................... 237
Free Trade and Efficiency...................................................................................................... 237
Additional Gains from Free Trade........................................................................................ 238
Rent Seeking......................................................................................................................... 239
Political Argument for Free Trade......................................................................................... 239
case study: The Gains from 1992...................................................................................... 240
National Welfare Arguments against Free Trade................................................................. 242
The Terms of Trade Argument for a Tariff........................................................................... 242
 Contents xiii

The Domestic Market Failure Argument against Free Trade................................................. 243

How Convincing Is the Market Failure Argument?............................................................... 245
Income Distribution and Trade Policy................................................................................. 246
Electoral Competition........................................................................................................... 247
Collective Action................................................................................................................... 248
box: Politicians for Sale: Evidence from the 1990s............................................................... 249
Modeling the Political Process............................................................................................... 250
Who Gets Protected?............................................................................................................. 250
International Negotiations and Trade Policy....................................................................... 252
The Advantages of Negotiation............................................................................................ 253
International Trade Agreements: A Brief History................................................................. 254
The Uruguay Round............................................................................................................. 256
Trade Liberalization.............................................................................................................. 256
Administrative Reforms: From the GATT to the WTO......................................................... 257
Benefits and Costs................................................................................................................. 258
box: Settling a Dispute—and Creating One........................................................................ 259
case study: Testing the WTO’s Metal............................................................................... 260
The Doha Disappointment.................................................................................................. 261
box: Do Agricultural Subsidies Hurt the Third World?........................................................ 262
Preferential Trading Agreements........................................................................................... 263
box: Free Trade Area versus Customs Union....................................................................... 265
box: Do Trade Preferences Have Appeal?........................................................................... 266
case study: Trade Diversion in South America.................................................................. 267
Summary............................................................................................................................ 268
Appendix: Proving that the Optimum Tariff Is Positive........................................................ 272
Demand and Supply.............................................................................................................. 272
The Tariff and Prices............................................................................................................. 272
The Tariff and Domestic Welfare.......................................................................................... 273

11 Trade Policy in Developing Countries 275

Import-Substituting Industrialization.................................................................................. 276
The Infant Industry Argument.............................................................................................. 277
Promoting Manufacturing Through Protection..................................................................... 278
case study: Mexico Abandons Import-Substituting Industrialization................................. 280
Results of Favoring Manufacturing: Problems of Import-Substituting Industrialization....... 281
Trade Liberalization since 1985........................................................................................... 282
Trade and Growth: Takeoff in Asia..................................................................................... 284
box: India’s Boom............................................................................................................... 287
Summary............................................................................................................................ 287

12 Controversies in Trade Policy 290

Sophisticated Arguments for Activist Trade Policy.............................................................. 291
Technology and Externalities................................................................................................ 291
Imperfect Competition and Strategic Trade Policy................................................................ 293
box: A Warning from Intel’s Founder.................................................................................. 296
case study: When the Chips Were Up............................................................................... 297
Globalization and Low-Wage Labor.................................................................................... 299
The Anti-Globalization Movement....................................................................................... 299
Trade and Wages Revisited.................................................................................................... 300
Labor Standards and Trade Negotiations.............................................................................. 302
Environmental and Cultural Issues....................................................................................... 303
The WTO and National Independence.................................................................................. 303
xiv Contents

case study: A Tragedy in Bangladesh................................................................................ 304

Globalization and the Environment...................................................................................... 305
Globalization, Growth, and Pollution................................................................................... 306
The Problem of “Pollution Havens”...................................................................................... 307
The Carbon Tariff Dispute................................................................................................... 309
Summary............................................................................................................................ 310

Mathematical Postscripts 313
Postscript to Chapter 5: The Factor-Proportions Model....................................................... 313
Factor Prices and Costs......................................................................................................... 313
Goods Prices and Factor Prices............................................................................................. 315
Factor Supplies and Outputs................................................................................................. 316
Postscript to Chapter 6: The Trading World Economy......................................................... 317
Supply, Demand, and Equilibrium........................................................................................ 317
Supply, Demand, and the Stability of Equilibrium................................................................ 319
Effects of Changes in Supply and Demand........................................................................... 321
Economic Growth................................................................................................................. 321
A Transfer of Income............................................................................................................ 322
A Tariff................................................................................................................................. 323
Postscript to Chapter 8: The Monopolistic Competition Model............................................ 325

Index 327

Credits 336

Online Appendices (www.pearsonhighered.com/krugman)

Appendix A to Chapter 6: International Transfers of Income and the Terms of Trade
The Transfer Problem
Effects of a Transfer on the Terms of Trade
Presumptions about the Terms of Trade Effects of Transfers
Appendix B to Chapter 6: Representing International Equilibrium with Offer Curves
Deriving a Country’s Offer Curve
International Equilibrium
Appendix A to Chapter 9: Tariff Analysis in General Equilibrium
A Tariff in a Small Country
A Tariff in a Large Country
Preface
Years after the global financial crisis that broke out in 2007–2008, the industrial
world’s economies are still growing too slowly to restore full employment. Emerging
markets, despite impressive income gains in many cases, remain vulnerable to the ebb
and flow of global capital. And finally, an acute economic crisis in the euro area has
lasted since 2009, bringing the future of Europe’s common currency into question.
This tenth edition therefore comes out at a time when we are more aware than ever
before of how events in the global economy influence each country’s economic for-
tunes, policies, and political debates. The world that emerged from World War II was
one in which trade, financial, and even communication links between countries were
limited. More than a decade into the 21st century, however, the picture is very dif-
ferent. Globalization has arrived, big time. International trade in goods and services
has expanded steadily over the past six decades thanks to declines in shipping and
communication costs, globally negotiated reductions in government trade barriers,
the widespread outsourcing of production activities, and a greater awareness of for-
eign cultures and products. New and better communications technologies, notably
the Internet, have revolutionized the way people in all countries obtain and exchange
information. International trade in financial assets such as currencies, stocks, and
bonds has expanded at a much faster pace even than international product trade.
This process brings benefits for owners of wealth but also creates risks of contagious
financial instability. Those risks were realized during the recent global financial cri-
sis, which spread quickly across national borders and has played out at huge cost to
the world economy. Of all the changes on the international scene in recent decades,
however, perhaps the biggest one remains the emergence of China—a development
that is already redefining the international balance of economic and political power
in the coming century.
Imagine the astonishment of the generation that lived through the depressed 1930s
as adults, had its members been able to foresee the shape of today’s world economy!
Nonetheless, the economic concerns that continue to cause international debate have
not changed that much from those that dominated the 1930s, nor indeed since they
were first analyzed by economists more than two centuries ago. What are the merits of
free trade among nations compared with protectionism? What causes countries to run
trade surpluses or deficits with their trading partners, and how are such imbalances
resolved over time? What causes banking and currency crises in open economies, what
causes financial contagion between economies, and how should governments handle
international financial instability? How can governments avoid unemployment and
inflation, what role do exchange rates play in their efforts, and how can countries best
cooperate to achieve their economic goals? As always in international economics, the
interplay of events and ideas has led to new modes of analysis. In turn, these analyti-
cal advances, however abstruse they may seem at first, ultimately do end up playing
a major role in governmental policies, in international negotiations, and in people’s
everyday lives. Globalization has made citizens of all countries much more aware than
ever before of the worldwide economic forces that influence their fortunes, and global-
ization is here to stay.

xv
xvi Preface

New to the Tenth Edition

For this edition, we are offering an Economics volume as well as Trade and Finance
splits. The goal with these distinct volumes is to allow professors to use the book that
best suits their needs based on the topics they cover in their International Economics
course. In the Economics volume for a two-semester course, we follow the standard
practice of dividing the book into two halves, devoted to trade and to monetary
questions. Although the trade and monetary portions of international economics
are often treated as unrelated subjects, even within one textbook, similar themes and
methods recur in both subfields. We have made it a point to illuminate connections
between the trade and monetary areas when they arise. At the same time, we have
made sure that the book’s two halves are completely self-contained. Thus, a one-
semester course on trade theory can be based on Chapters 2 through 12, and a one-
semester course on international monetary economics can be based on Chapters 13
through 22. For professors’ and students’ convenience, however, they can now opt to
use either the Trade or the Finance volume, depending on the length and scope of
their course.
We have thoroughly updated the content and extensively revised several chapters.
These revisions respond both to users’ suggestions and to some important develop-
ments on the theoretical and practical sides of international economics. The most
far-reaching changes in the Trade volume are the following:

■■ Chapter 5, Resources and Trade: The Heckscher-Ohlin Model This edition offers
­expanded coverage of the effects on wage inequality of North-South trade, tech-
nological change, and outsourcing. The section describing the empirical evidence
on the Heckscher-Ohlin model has been rewritten, emphasizing new research.
That ­section also incorporates some new data showing how China’s pattern of
­exports has changed over time in a way that is consistent with the predictions of the
Heckscher-Olhin model.
■■ Chapter 6, The Standard Trade Model This chapter has been updated with some
new data documenting how the terms of trade for the U.S. and Chinese economies
have evolved over time.
■■ Chapter 8, Firms in the Global Economy: Export Decisions, Outsourcing, and
Multinational Enterprises The coverage emphasizing the role of firms in interna-
tional trade has been revised. There is also a new Case Study analyzing the impact
of offshoring in the United States on U.S. unemployment.
■■ Chapter 9, The Instruments of Trade Policy This chapter features an updated treat-
ment of the effects of trade restrictions on United States firms. This chapter now
describes the recent trade policy dispute between the European Union and China
regarding solar panels and the effects of the “Buy American” restrictions that were
written into the American Recovery and Re-Investment Act of 2009.
■■ Chapter 12, Controversies in Trade Policy A new case study discusses the recent gar-
ment factory collapse in Bangladesh (in April 2013) and the tension between the
costs and benefits of Bangladesh’s rapid growth as a clothing exporter.

In addition to these structural changes, we have updated the book in other ways to
maintain current relevance. Thus, in the Trade volume, we examine the educational
profile of foreign born workers in the United States and how it differs from the over-
all population (Chapter 4); we review recent anti-dumping disputes involving China
(Chapter 8).
 Preface xvii

About the Book

The idea of writing this book came out of our experience in teaching international eco-
nomics to undergraduates and business students since the late 1970s. We perceived two
main challenges in teaching. The first was to communicate to students the exciting intellec-
tual advances in this dynamic field. The second was to show how the development of in-
ternational economic theory has traditionally been shaped by the need to understand the
changing world economy and analyze actual problems in international economic policy.
We found that published textbooks did not adequately meet these challenges. Too
often, international economics textbooks confront students with a bewildering array
of special models and assumptions from which basic lessons are difficult to extract.
Because many of these special models are outmoded, students are left puzzled about
the real-world relevance of the analysis. As a result, many textbooks often leave a
gap between the somewhat antiquated material to be covered in class and the exciting
issues that dominate current research and policy debates. That gap has widened dra-
matically as the importance of international economic problems—and enrollments in
international economics courses—have grown.
This book is our attempt to provide an up-to-date and understandable analytical
framework for illuminating current events and bringing the excitement of internation-
al economics into the classroom. In analyzing both the real and monetary sides of the
subject, our approach has been to build up, step by step, a simple, unified framework
for communicating the grand traditional insights as well as the newest findings and
approaches. To help the student grasp and retain the underlying logic of international
economics, we motivate the theoretical development at each stage by pertinent data
and policy questions.

The Place of This Book in the Economics Curriculum

Students assimilate international economics most readily when it is presented as a
method of analysis vitally linked to events in the world economy, rather than as a body
of abstract theorems about abstract models. Our goal has therefore been to stress con-
cepts and their application rather than theoretical formalism. Accordingly, the book
does not presuppose an extensive background in economics. Students who have had
a course in economic principles will find the book accessible, but students who have
taken further courses in microeconomics or macroeconomics will find an abundant
supply of new material. Specialized appendices and mathematical postscripts have
been included to challenge the most advanced students.

Some Distinctive Features

This book covers the most important recent developments in international economics
without shortchanging the enduring theoretical and historical insights that have tra-
ditionally formed the core of the subject. We have achieved this comprehensiveness
by stressing how recent theories have evolved from earlier findings in response to an
evolving world economy. The text is divided into a core of chapters focused on theory,
followed by chapters applying the theory to major policy questions, past and current.
In Chapter 1, we describe in some detail how this book addresses the major themes
of international economics. Here we emphasize several of the topics that previous
authors failed to treat in a systematic way.
xviii Preface

Increasing Returns and Market Structure

Even before discussing the role of comparative advantage in promoting international
exchange and the associated welfare gains, we visit the forefront of theoretical and
empirical research by setting out the gravity model of trade (Chapter 2). We return to
the research frontier (in Chapters 7 and 8) by explaining how increasing returns and
product differentiation affect trade and welfare. The models explored in this discus-
sion capture significant aspects of reality, such as intraindustry trade and shifts in
trade patterns due to dynamic scale economies. The models show, too, that mutually
beneficial trade need not be based on comparative advantage.

Firms in International Trade

Chapter 8 also summarizes exciting new research focused on the role of firms in
­international trade. The chapter emphasizes that different firms may fare differently in
the face of globalization. The expansion of some and the contraction of others shift
overall production toward more efficient producers within industrial sectors, raising
overall productivity and thereby generating gains from trade. Those firms that expand
in an environment of freer trade may have incentives to outsource some of their pro-
duction activities abroad or take up multinational production, as we describe in the
chapter.

Politics and Theory of Trade Policy

Starting in Chapter 4, we stress the effect of trade on income distribution as the key
political factor behind restrictions on free trade. This emphasis makes it clear to stu-
dents why the prescriptions of the standard welfare analysis of trade policy seldom
prevail in practice. Chapter 12 explores the popular notion that governments should
adopt activist trade policies aimed at encouraging sectors of the economy seen as cru-
cial. The chapter includes a theoretical discussion of such trade policy based on simple
ideas from game theory.
 Preface xix

Learning Features
This book incorporates a number of special learning features that will maintain stu-
dents’ interest in the presentation and help them master its lessons.

Case Studies
Case studies that perform the threefold role of reinforcing material covered earlier,
illustrating its applicability in the real world, and providing important historical infor-
mation often accompany theoretical discussions.

Special Boxes
Less central topics that nonetheless offer particularly vivid illustrations of points
made in the text are treated in boxes. Among these are U.S. President Thomas Jeffer-
son’s trade embargo of 1807–1809 (Chapter 3); the astonishing ability of disputes over
banana trade to generate acrimony among countries far too cold to grow any of their
own bananas (Chapter 10).

Captioned Diagrams
More than 200 diagrams are accompanied by descriptive captions that reinforce the
discussion in the text and help the student in reviewing the material.

Learning Goals
A list of essential concepts sets the stage for each chapter in the book. These learning
goals help students assess their mastery of the material.

Summary and Key Terms

Each chapter closes with a summary recapitulating the major points. Key terms and
phrases appear in boldface type when they are introduced in the chapter and are listed
at the end of each chapter. To further aid student review of the material, key terms are
italicized when they appear in the chapter summary.

Problems
Each chapter is followed by problems intended to test and solidify students’ compre-
hension. The problems range from routine computational drills to “big picture” ques-
tions suitable for classroom discussion. In many problems we ask students to apply
what they have learned to real-world data or policy questions.

Further Readings
For instructors who prefer to supplement the textbook with outside readings, and for
students who wish to probe more deeply on their own, each chapter has an annotated
bibliography that includes established classics as well as up-to-date examinations of
recent issues.
xx Preface

MyEconLab
MyEconLab
MyEconLab is the premier online assessment and tutorial system, pairing rich online
content with innovative learning tools. MyEconLab includes comprehensive home-
work, quiz, test, and tutorial options, allowing instructors to manage all assessment
needs in one program. Key innovations in the MyEconLab course for the tenth edition
of International Trade: Theory & Policy include the following:

■■ Real-Time Data Analysis Exercises, marked with , allow students and instructors
to use the latest data from FRED, the online macroeconomic data bank from the
Federal Reserve Bank of St. Louis. By completing the exercises, students become
familiar with a key data source, learn how to locate data, and develop skills to inter-
pret data.
■■ In the enhanced eText available in MyEconLab, figures labeled MyEconLab Real-
Time Data allow students to display a pop-up graph updated with real-time data
from FRED.
■■ Current News Exercises, new to this edition of the MyEconLab course, provide a turn-
key way to assign gradable news-based exercises in MyEconLab. Every week, Pearson
scours the news, finds a current article appropriate for an economics course, creates
an exercise around the news article, and then automatically adds it to MyEconLab.
Assigning and grading current news-based exercises that deal with the latest economic
events has never been more convenient.

Students and MyEconLab

This online homework and tutorial system puts students in control of their own
learning through a suite of study and practice tools correlated with the online, in-
teractive version of the textbook and learning aids such as animated figures. Within
MyEconLab’s structured environment, students practice what they learn, test their
understanding, and then pursue a study plan that MyEconLab generates for them
based on their performance.

Instructors and MyEconLab

MyEconLab provides flexible tools that allow instructors easily and effectively to cus-
tomize online course materials to suit their needs. Instructors can create and assign
tests, quizzes, or homework assignments. MyEconLab saves time by automatically
grading all questions and tracking results in an online gradebook. MyEconLab can
even grade assignments that require students to draw a graph.
After registering for MyEconLab instructors have access to downloadable supple-
ments such as an instructor’s manual, PowerPoint lecture notes, and a test bank. The
test bank can also be used within MyEconLab, giving instructors ample material from
which they can create assignments—or the Custom Exercise Builder makes it easy for
instructors to create their own questions.
Weekly news articles, video, and RSS feeds help keep students updated on current
events and make it easy for instructors to incorporate relevant news in lectures and
homework.
For more information about MyEconLab or to request an instructor access code,
visit www.myeconlab.com.
 Preface xxi

Additional Supplementary Resources

A full range of additional supplementary materials to support teaching and learning
accompanies this book.

■■ The Online Instructor’s Manual—updated by Hisham Foad of San Diego State

University—includes chapter overviews and answers to the end-of-chapter problems.
■■ The Online Test Bank offers a rich array of multiple-choice and essay questions, in-
cluding some mathematical and graphing problems, for each textbook chapter. It is
available in Word, PDF, and TestGen formats. This Test Bank was carefully revised
and updated by Robert F. Brooker of Gannon University.
■■ The Computerized Test Bank reproduces the Test Bank material in the TestGen
software that is available for Windows and Macintosh. With TestGen, instructors
can easily edit existing questions, add questions, generate tests, and print the tests in
variety of formats.
■■ The Online PowerPoint Presentation with Tables, Figures, & Lecture Notes was
­revised by Amy Glass of Texas A&M University. This resource contains all text
figures and tables and can be used for in-class presentations.
■■ The Companion Web Site at www.pearsonhighered.com/krugman contains addi-
tional appendices. (See page xiv of the Contents for a detailed list of the Online
Appendices.)

Instructors can download supplements from our secure Instructor’s Resource

Center. Please visit www.pearsonhighered.com/irc.
xxii Preface

Acknowledgments
Our primary debt is to Christina Masturzo, the Acquisitions Editor in charge of the
project. We also are grateful to the Program Manager, Carolyn Philips, and the Proj-
ect Manager, Carla Thompson. Heather Johnson’s efforts as Project Manager with
­Integra-Chicago were essential and efficient. We would also like to thank the me-
dia team at Pearson—Denise Clinton, Noel Lotz, Courtney Kamauf, and Melissa
­Honig—for all their hard work on the MyEconLab course for the tenth edition. Last,
we thank the other editors who helped make the first nine editions of this book as
good as they were.
We also wish to acknowledge the sterling research assistance of Tatjana Kleine-
berg and Sandile Hlatshwayo. Camille Fernandez provided superb logistical support,
as usual. For helpful suggestions and moral support, we thank Jennifer Cobb, Gita
Gopinath, Vladimir Hlasny, and Phillip Swagel.
We thank the following reviewers, past and present, for their recommendations and
insights:

Jaleel Ahmad, Concordia University Robert Foster, American Graduate School

Lian An, University of North Florida
Anthony Paul Andrews, Governors State
University
Myrvin Anthony, University of Strathclyde, U.K.
Michael Arghyrou, Cardiff University
Richard Ault, Auburn University
Amitrajeet Batabyal, Rochester Institute
of Technology
Tibor Besedes, Georgia Tech
George H. Borts, Brown University
Robert F. Brooker, Gannon University
Francisco Carrada-Bravo, W.P. Carey School
of Business, ASU
Debajyoti Chakrabarty, University of Sydney
Adhip Chaudhuri, Georgetown University
Jay Pil Choi, Michigan State University
Jaiho Chung, National University of Singapore
Jonathan Conning, Hunter College and The
Graduate Center, The City University
of New York
Brian Copeland, University of British Columbia
Kevin Cotter, Wayne State University
Barbara Craig, Oberlin College
Susan Dadres, University of North Texas
Ronald B. Davies, University College Dublin
Ann Davis, Marist College
Gopal C. Dorai, William Paterson University
Robert Driskill, Vanderbilt University
Gerald Epstein, University of Massachusetts
at Amherst
JoAnne Feeney, State University of New York
at Albany
of International Management
Patrice Franko, Colby College
Diana Fuguitt, Eckerd College
Byron Gangnes, University of Hawaii at Manoa
Ranjeeta Ghiara, California State University,
San Marcos
Neil Gilfedder, Stanford University
Amy Glass, Texas A&M University
Patrick Gormely, Kansas State University
Thomas Grennes, North Carolina State University
Bodil Olai Hansen, Copenhagen Business School
Michael Hoffman, U.S. Government Accountability
Office
Henk Jager, University of Amsterdam
Arvind Jaggi, Franklin & Marshall College
Mark Jelavich, Northwest Missouri State University
Philip R. Jones, University of Bath and University
of Bristol, U.K.
Tsvetanka Karagyozova, Lawrence University
Hugh Kelley, Indiana University
Michael Kevane, Santa Clara University
Maureen Kilkenny, University of Nevada
Hyeongwoo Kim, Auburn University
Stephen A. King, San Diego State University,
Imperial Valley
Faik Koray, Louisiana State University
Corinne Krupp, Duke University
Bun Song Lee, University of Nebraska, Omaha
Daniel Lee, Shippensburg University
Francis A. Lees, St. Johns University
Jamus Jerome Lim, World Bank Group
Rodney Ludema, Georgetown University

Stephen V. Marks, Pomona College
Michael L. McPherson, University of North Texas
Marcel Mérette, University of Ottawa
Shannon Mitchell, Virginia Commonwealth
University
Kaz Miyagiwa, Emory University
Shannon Mudd, Ursinus College
Marc-Andreas Muendler, University of California,
San Diego
Ton M. Mulder, Erasmus University, Rotterdam
Robert G. Murphy, Boston College
E. Wayne Nafziger, Kansas State University
Steen Nielsen, University of Aarhus
Dmitri Nizovtsev, Washburn University
Terutomo Ozawa, Colorado State University
Arvind Panagariya, Columbia University
Nina Pavcnik, Dartmouth College
Iordanis Petsas, University of Scranton
Thitima Puttitanun, San Diego State University
Peter Rangazas, Indiana University-Purdue
University Indianapolis
James E. Rauch, University of California,
San Diego
Michael Ryan, Western Michigan University
Although we have not been able to make each and every suggested change, we found
reviewers’ observations invaluable in revising the book. Obviously, we bear sole respon-
sibility for its remaining shortcomings.
Preface xxiii
Donald Schilling, University of Missouri, Columbia
Patricia Higino Schneider, Mount Holyoke College
Ronald M. Schramm, Columbia University
Craig Schulman, Texas A&M University
Yochanan Shachmurove, University of Pennsylvania
Margaret Simpson, The College of William
and Mary
Enrico Spolaore, Tufts University
Robert Staiger, University of Wisconsin-Madison
Jeffrey Steagall, University of North Florida
Robert M. Stern, University of Michigan
Abdulhamid Sukar, Cameron University
Rebecca Taylor, University of Portsmouth, U.K.
Scott Taylor, University of British Columbia
Aileen Thompson, Carleton University
Sarah Tinkler, Portland State University
Arja H. Turunen-Red, University of New Orleans
Dick vander Wal, Free University of Amsterdam
Gerald Willmann, University of Kiel
Rossitza Wooster, California State University,
Sacramento
Bruce Wydick, University of San Francisco
Jiawen Yang, The George Washington University
Kevin H. Zhang, Illinois State University
Paul R. Krugman
Maurice Obstfeld
Marc J. Melitz
October 2013
This page intentionally left blank
Another random document with
no related content on Scribd:
opening the flap without leaving a trace, but the task was
accomplished at last.
“Now!” he exclaimed, his face flushed and his eyes gleaming, “we’ll
see what this great message is all about!”
From the envelope he took several sheets of parchmentlike paper,
which were covered with writing. Then, by the light of the lamp, he
settled himself to read the message that had never been intended for
other eyes than those of Frank Merriwell.
As Packard read he showed signs of surprise. At first he whistled
softly, then he uttered an exclamation, and at last he exclaimed
aloud:
“Well, by Jove! this is interesting!”
When he had finished reading, he started up, exclaiming:
“Frank Merriwell’s fate is in my hands! Almighty goodness! What a
ten-strike! With the aid of this I can turn him out into the world a
pauper! Roland Packard, this is the greatest piece of work you ever
did. Five hundred dollars! Why, this is worth five million dollars!”
He was wildly excited, and could hardly repress wild shouts of joy.
Indeed, he executed a savage dance of exultation.
“At last!” he panted. “Now I am able to obtain revenge for every
injury Merriwell has done me! Oh, but my revenge will be a sweet
one!”
The rascal was so excited and interested that he again read the
wonderful message from beginning to end.
“Now,” he said, “to fool Mescal first. He must pay me the five
hundred, for I need it.”
There was some writing-paper on a table near. He took several
sheets, folded them, and thrust them into the envelope from which
the message had been removed. Then he stuck down the flap with
care and brought out his sealing-wax and the ring he had purchased.
Removing the chimney from the lamp, he heated the wax in the
flame and dropped it on exactly the spot where the original seal had
been. At the proper time he pressed the ring on the wax, and an
exact reproduction of the first seal was made.
Packard surveyed his work with pride, examining it closely to see if a
casual observer could detect that the envelope had been tampered
with.
“It’s all right,” he decided. “I’ll defy anybody to tell that it has been
opened. Oh, I’m a clever devil! Mr. Merriwell is in the midst of his
glory now, but he shall go out from Yale a beggar! If he only knew!
Some time he shall know. When it is too late, I’ll tell him all, and that
shall be my triumph.”
Then he set about fixing the other envelope, into which he placed the
message, sticking down the flap and putting on the seal.
“All that is necessary is to soil it a little,” he said. “Then it will be
exactly like the original. No—by George, no!”
He had turned the original envelope and seen the writing upon it.
“Well,” muttered the fellow, after a few moments. “I’m rather clever at
imitating handwriting, so I’ll see what I can do in this case.”
Finding pen and ink, he set about the task. At first he imitated on a
sheet of paper the writing on the original envelope. The first trial was
not perfectly satisfactory, so he made another attempt.
“There,” he said, as he examined it, “if I can do as well as that on the
envelope it will be a first-class job.”
Without delay he set at work on the envelope, and the result was
greatly to his liking.
“It’s all right,” he decided, as he blotted it. “I believe it would fool
Merriwell himself.”
He destroyed the sheet on which he had been practising, and then
placed the envelope containing the message in his pocket, where it
would be safe.
“Now to get the five hundred!” he laughed, as he picked up the other
envelope. “Hamlet’s ghost! but won’t Mr. Anton Mescal be hot under
the collar when he opens this and finds nothing but blank paper in it!”
There was a slight sound at the door. A key turned in the lock, and
Packard leaped to his feet, turning in time to see the door swing
open. Quick as a flash, he thrust the envelope into his pocket.
Oliver Packard stepped into the room.
“You?” exclaimed Roland.
“Yes!” said Oliver.
He stepped in, closed the door, and locked it.
“Why the devil are you here?” snarled Roland.
“To find you,” said Oliver quietly.
“What do you want of me?”
“I want that message.”
“What message?”
“The one you snatched from Merriwell.”
“What ails you? Are you nutty?”
“Hand it over!” commanded Oliver.
“You go die!” sneered Roland. “You’re silly.”
“I am here to take it, and I shall,” declared Oliver.
“I don’t know what you’re talking about.”
“What did you put in your pocket just as I entered?”
“None of your business!”
“I know what it was.”
“Then if you know so much, why do you ask me?”
“It was the message.”
“What are you giving me about a message?”
“It’s no use to play innocent with me, Roll.”
Roland uttered a savage exclamation.
“You get out of here!” he cried, taking a step.
Oliver did not stir.
“I’ll go when you give me what I am after,” he said.
“I’ll give it to you—in the neck!”
“Roll,” said Oliver quietly, “you can’t bluff me. I know you snatched a
message from Frank Merriwell’s hand to-night, and you have it with
you. I was accused, but Merriwell believed me on my word of honor.”
“That’s more than he would me,” said Roland, with a harsh laugh.
“You have only yourself to blame if no one will believe your word of
honor,” said Oliver.
“Sermon, is it?” cried the other. “You’re always preaching nowadays,
Oll.”
“It’s no sermon now, for I have no time to waste.”
“I’m glad of it. Get out and let me alone.”
“I shall not go till I get what I came for. I will clear myself of suspicion,
and I will restore to Merriwell what rightfully belongs to him.”
“You’ve tackled a big job.”
“I shall do it.”
“How?”
“Somehow—anyhow. You have disgraced me time and again, Roll,
and I have stood it for mother’s sake. She loves you more than she
does me, and——”
“Oh, cut it out! You’ve told me this before.”
“But for me you would have broken her heart already.”
“Good little Oliver! he was his mammy’s precious boy!” mocked Roll.
“Oh, you make me sick!”
“You know what I say is true. But for me you would have been
expelled in disgrace before this. I have saved you when Frank
Merriwell was ready to punish you for your wrong-doing. How have
you repaid me! To-day you have done something that has filled me
with intense shame and humiliation. Yet I do not believe you care a
snap.”
“What’s the use?”
“Ingrate!” panted Oliver, aroused.
“Bah!” returned the other, snapping his fingers.
Oll advanced into the room, his eyes flashing.
“Before this I have shouldered the blame that you should have
taken,” he cried. “Your actions have caused me to be dropped by my
best friends, with the exception of Merriwell. Your actions caused me
to lose my chance of making the nine again this year. I have endured
all that I can. The limit is reached.”
“Now what?”
“I’m going to cut clear from you.”
“I’m glad of it!”
“But first I am going to restore that stolen message to Merriwell.”
“Are you?”
“Yes.”
“Well, go ahead.”
Roland was defiant.
“Give it to me!” panted Oliver, his hands clenched, while he trembled
in every limb. “I demand it!”
“Well, you’ll have to demand. You won’t get it.”
“You can’t get out without giving it to me, Roll,” asserted Oliver
grimly, as he now advanced upon his brother.
“What do you think you are going to do?” demanded the young
rascal. “Don’t make an idiot of yourself!”
Oliver clutched his brother by the collar.
“Give it up!” he commanded. “I’ll take it if I have to strip your clothes
off to do so.”
Roland laughed defiantly. Then he suddenly broke Oliver’s hold and
struck the hand of his brother aside.
A moment later Oliver flew at Roland with terrible fury, grasping him
by the throat.
Then began a desperate encounter between the brothers. Roland
found Oliver desperate and determined. For at least ten minutes they
fought, and at last Oliver had thrown his brother to the floor and
pinned him there. Then he thrust his hand into Roland’s pocket and
drew out the envelope that the youthful villain had prepared to
deceive Anton Mescal.
“I have it!” exclaimed Oliver triumphantly.
“Well, keep it!” grated Roland, inwardly delighted over the fact that
the message was safe and Oliver was deceived. “Let me up! You
ought to be satisfied.”
Having put the letter in his pocket, Oliver quickly leaped to his feet
and backed away, saying:
“I am satisfied in getting the message, but I’d had it even though you
had forced me to kill you!”
“You’re a nice one!” snapped Roland, sitting up. “You’re a fine
brother to have!”
“I can return the compliment with interest. But never again will I
shoulder any of your wrong-doing, Roland. If you get into a bad
scrape in the future through your actions, you must not look to me for
assistance.”
“Oh, I won’t! Don’t worry about that. After to-night we are no longer
brothers! You are my enemy!”
“I have been your best friend. You have made your choice by your
conduct.”
Oliver had retreated to the door, still watching Roland, who now
laughed and said:
“Get out if you want to; I sha’n’t try to stop you. I’ll not fight again
over that old message. I don’t believe it amounts to anything,
anyhow.”
Oliver unlocked the door cautiously, for he did not trust Roland, even
then.
“I shall tell Merriwell the truth,” he said, “and I shall not ask him to let
you off without punishment, as I have in the past. He may punish you
or not, as he chooses. If he does not, it will be because he is the soul
of generosity.”
Then he opened the door and disappeared quickly, closing it behind
him.
Roland Packard laughed in noiseless triumph.
“Go it, you fool!” he whispered. “I have the message, and you have
nothing but an envelope containing a lot of blank paper. I’d like to
see Merriwell’s face when he opens that envelope!”
 CHAPTER V.
CELEBRATION OF THE OLD GRADS.

The celebration was in progress. Frank Merriwell, with Inza Burrage

at his side, was watching the fun from Vanderbilt. Frank’s heart was
troubled because of the loss of the message, but his face was
smiling.
The class of ’Umpty-six was celebrating its silver-wedding. Twenty-
five years had passed since these hilarious old grads received their
sheepskins. They were back in force, and they had set out to make
things lively.
The great dinner at Heibs’ was over. But, unless one eats the dinner,
what profit to describe it. So the class of ’Umpty-six made merry on
this occasion of hilarious good cheer. After twenty-five years the
class had returned to dear old Yale, dined in the shadow of her
buildings, and drunk often and lovingly to the memory of bygone
days.
A band awaited those sons of ’Umpty-six outside the door. The
toasts were over, so that now they were ready to start upon their
night of fun. What though their hair is streaked with gray! What
though some are bewhiskered to the eyes! Have they not left dignity,
business cares, and such minor matters at home?
The band struck up, “For He’s a Jolly Good Fellow.” The ’Umpty-
sixers came out of Heibs’, arm in arm. They caught up the song,
and, in full blare, the band moved toward Chapel Street, the grads
following. They turn into Chapel Street, which, even at this hour, is
brilliantly lighted, for no one thinks of sleep to-night. And thus they
move toward Osborne Hall.
On that corner, where is now the sober recitation hall, for half a
century stood the old Yale fence, the focus of college life, the scene
of storied struggles, the theater of evening glees, the symbol of
happy days at Yale.
But now the old fence is gone. However, nothing will do for these old
grads but that a substitute, propped up by iron supports, must be set
in front of Osborn, and thither the jolly old ’Umpty-sixers direct their
course.
“To the fence! Clear the road! Let off the red fire! Turn loose the sky-
rockets and Roman candles, and cram the night full of blooming
noise!”
Up Chapel Street they come in a flare of colored fire, with the rockets
hissing skyward, the Roman candles popping aloft their gleaming
balls of colored flame, while torpedoes and giant crackers add to the
racket.
The windows of the New Haven House are filled with women and
pretty girls who had been watching the hilarious crowd of grads
across the street all the evening. This is a new and wild scene to
them, and now, when they behold the ’Umpty-sixers come singing
and dancing up to the fence, not a few are more than ever
impressed by the fact that it is a dangerous thing to turn a Yale
graduate loose on old New Haven town upon the occasion of one of
his class reunions.
“’Umpty-sixers, take the fence!” goes up the cry.
There follows a rush of the old fellows, all eager to gain a place on
the fence.
Then the band plays all the old college songs, and for several hours
to come these hilarious old gray-beards will bawl and howl to the
strains of the band.
But ’Umpty-six is not the only class mixed up in this general blow-
out. Other and younger classes are there, back for occasions of
lesser significance than the silver-wedding. Nearly a thousand Yale
men are surging about Osborn corner, which is kept brilliantly lighted
by the glare of Egyptian red lights. Judging by the deafening noise, it
would seem that the entire stock of fireworks in the city must have
been set off already. But they will keep coming in wagon-loads.
And in the midst of all this tumultuous rejoicing the man who has
won for Yale the baseball championship of the season is not
forgotten.
“Long cheer for Merriwell!” shrieks an ’Umpty-sixer.
Then the whole vast crowd of Yale men pause to roar out the cheer
for a Yale man who to-night is more famous than all others.
No wonder that Merriwell himself felt a thrill. No wonder some of his
friends laughed while their eyes were dimmed with tears.
And on his arm was the pressure of a hand—the hand of the girl he
loved. And at his side was a radiantly beautiful girl, who felt that on
this day of his glory her joy must be even greater than his.
Hans Dunnerwurst was sobbing.
“Whut in thunder is the matter with yeou?” blurted Ephraim Gallup,
giving the Dutch youth a punch.
“I don’d knew vot id vos,” answered Hans, “but I veel like I vos peing
tickled a fedder by till I couldn’t stood him no longer alretty.”
“Begorra! Oi fale loike Oi’d nivver get over it!” said Barney Mulloy.
“Oi’ll drame av this fer a year.”
Elsie is there. She is saying nothing, but the joy in her blue eyes
speaks. She looks at Frank as that mighty cheer for him rolls up to
the rocket-riven sky. She sees Inza’s hand on Frank’s arm, and then
—then she turns to Hodge.
Bart, once called selfish, feels that he is far happier than he would be
were those men cheering for him. A good, true friend Bart had been,
and in this hour there is nothing of envy in his heart.
Why should there be? Elsie was beside him, and, somehow, he felt
that for all of Frank’s great glory, for all of bewildering, dark-eyed
Inza, he—Bart—had won the prize of prizes.
“Speech!” shouted an ’Umpty-sixer, as the cheering subsided.
“Speech! Speech!” roared the others.
“Speech by Billy Bilton, the only and original windmill of ’Umpty-six!”
cried an old grad. “Put him up—put him in the wagon with the
fireworks! Shoot off your face, Billy! Billy Bilton!”
“Billy Bilton! ’Umpty-six!” roared the crowd.
Billy Bilton was the Honorable William P. Bilton, representative in
Congress for the great and glorious Commonwealth of Maine. Billy
smiled, and that smile was something worth beholding! He removed
the cigar from his mouth and held it between his fingers.
“My contemporaries,” he began, pointing with the cigar toward the
fireworks in the wagon, “have been doing such good work that I feel
handicapped. But I want to say that the greatest thing in this great
university on this great night, next to the great class of ’Umpty-six, is
the great Frank Merriwell!”
Then they cheered again.
“Now,” said Billy, when he could again be heard, “I want to tell you
what Frank Merriwell has done for Yale. He has made for her the
proudest athletic record of any college in the country. Since the day
that he was placed in command not one important game has been
taken from us. It was he who arose in time to lift Yale from the slough
of despond into which she had fallen, and it was he who has led her
to the dazzling heights of glory where she now stands. That’s not all.
While he has uplifted Yale he has risen himself, until to-day he is
known from the broad Atlantic to the blue Pacific. Yea, wherever the
flag of our country floats, the glorious Stars and Stripes, there has
spread the name and fame and glory of Merriwell, of Yale.”
It was impossible for him to continue until they had cheered again.
“Even to foreign lands his glory has spread,” the speaker went on.
“Wherever the English language is spoken the name of Merriwell
may be heard. From the Klondike to Patagonia, from the Philippines
to South Africa, he is known and admired and reverenced as the
model American youth. Old men commend him to the young, the
young try to model after him, and even the child at its mother’s knee
lisps the name of Merriwell.”
“Oh, say!” muttered Frank; “he’s putting it on too thick! I can’t stand
this!”
But Billy was ready to switch now, although he had no thought of
stopping. He waved his hand, and sparks flew from his glowing cigar.
“Now,” he shouted, “I want to tell you what ’Umpty-six has done for
Yale. ’Umpty-six is the greatest class that ever graduated from Yale!”
he declared, with another wild gesture that caused him to drop his
cigar. “’Umpty-six is——”
Bang—barked a cannon cracker in the wagon.
“’Umpty-six——”
Bang! bang! bang!
A series of terrible explosions set William to dancing in a lively
manner, for his fallen cigar had ignited the fireworks in the wagon.
The horse attached to the wagon was frightened and broke away,
despite all efforts to hold him.
Immediately the Honorable William lost his footing and fell upon his
knees in the wagon, while away pranced the horse at a mad gallop.
The orator was kneeling in the midst of a pyrotechnic display of
hissing Roman candles, flaming red lights, bursting cannon crackers,
and screaming rockets. Jack Ready afterward declared that it was a
grand and awe-inspiring spectacle.
“There goes Windy Billy!” shouted the crowd, and every man, to the
last one, started after the blazing wagon and the most startling piece
of set fireworks ever seen in New Haven, which was long
remembered by the name of “The American Representative in All
His Glory.”
As the wagon disappeared Frank Merriwell, who was laughing at the
astonishing climax, felt a hand on his shoulder. He turned and saw
Oliver Packard.
“I have found you at last,” said Packard. “I’ve been hunting for you
more than two hours.”
“I have been right here all along,” said Frank. “What do you want,
Oliver?”
“I have brought it,” was the triumphant answer, as Packard put his
hand into his pocket and drew out the sealed oilskin envelope. “Here
it is, Merriwell.”
“Good!” exclaimed Merry, in great satisfaction, as he immediately
thrust it into his pocket. “I’ll take care it is not snatched from me
again. I’ll ask you no questions, Oliver, and I’ll not forget what you
have done.”
 CHAPTER VI.
ANTON MESCAL STRIKES.

Roland Packard had fancied he might be forced to destroy the

original oilskin envelope in removing the message from it, and for
that reason he had secured a duplicate. When he succeeded in
getting the message out without destroying the original envelope, he
decided that the best thing to do was to place the blank paper in that
same envelope, as the clean newness of the other might betray the
trick. Then he was seized by a desire to put the message in the other
envelope and copy as accurately as possible the writing upon it,
which he did.
The villainous student chuckled gleefully as he thought how his
brother had been deceived.
“I have the message safe in my pocket,” he muttered, “while Oll is
taking the fake to Merriwell. But must I give up this genuine article in
order to get the five hundred from Mescal?”
He was not at all pleased by the thought. In fact, he quickly decided
not to give up the message, if he could help it. He set to thinking the
matter over, and it was not long before he had decided on his course
of action. He left the club-room and skulked away to his own room,
taking care to attract as little attention as possible.
The following morning Roland secured another oilskin envelope.
Knowing Oliver would be off to the exercises of the day, he sought
his own room and prepared the envelope there.
When he came out the seniors, in caps and gowns, were assembling
at the chapel, into which a crowd of visitors was flowing.
“Merriwell will be there in all his glory!” muttered Packard to himself.
“He will be the cynosure of all eyes. Oh, he’ll feel proud and fine, but
little he’ll dream that it is my hand that will send him forth from Yale a
pauper.”
The chapel was thronged with visitors when the exercises began,
and Packard was right in thinking that Merriwell would be the center
of attraction.
In the meantime Packard had sought Anton Mescal, whom he finally
found in a room at the Tontine. Mescal had a bottle of wine on the
table at his elbow, and was smoking a Spanish cigarette. His face
was flushed and his eyes gleamed wolfishly when Roland entered.
He did not rise, but regarded the student grimly.
“I’ve come,” said Packard, with an air of triumph.
“I see you have,” said Mescal coldly, showing his white teeth after
the manner of a wolf.
“You do not appear glad to see me.”
“But I am glad—very glad,” said the man from the West, in a very
singular way.
Packard paused, and a shiver ran over him. There was something
deadly in the atmosphere.
“Sit down,” invited Mescal, in that same awesome manner, making a
slight gesture toward a chair.
“I had a hard time getting the message,” began Packard awkwardly.
“Then you did get it?” asked Mescal.
“Yes. When I set out to do a thing, I have a way of doing it. But you
do not seem much pleased.”
“I am pleased—very pleased. Go on. How did you get it?”
“I went straight to Merriwell’s room in the tracks of the man you bade
me follow.”
“To Merriwell’s room?”
“Yes. I could not get a chance to tackle the fellow and secure the
message. You know the streets were full.”
“Yes.”
“If I had tackled him on the street I must have failed, and I would
have been lodged in the jug.”
“Possibly. Go on.”
The manner of the Westerner had not changed in the least, and
Roland felt that those daggerlike eyes were piercing him through and
through.
“Merriwell’s room was packed with his friends, who were there to
congratulate him. I walked right in after the messenger.”
“Very bold of you!”
“The messenger took the message from his pocket and handed it
over to Merriwell.”
“And you?”
“I was near enough to spring forward and snatch it from Merriwell’s
hand.”
“But you did not?”
“I did! I snatched it and fled. I eluded the pursuers and got away with
it. Of course, they were searching for me last night, so I was
compelled to lay low. But I am here now.”
“And you have the message?”
“I have.”
Mescal rose to his feet, and the look on his face seemed to become
more dangerous than ever.
“Where is it?”
“Here,” said Packard, also rising.
From his pocket he took the fake envelope, which he held in his
hand.
“Give me the five hundred dollars,” he demanded. “It is yours the
moment you pay me the money.”
Mescal stepped clear of the table, and by a sudden spring placed
himself between Packard and the door. He was like a panther in his
movements.
“What’s the matter with you?” asked Roland, in alarm. “What are you
doing? Don’t think for a moment that you can take the message from
me without paying the money.”
“You fool!” said Mescal, in a low tone. “You liar! You traitor!”
Packard saw there was trouble in the air. He wondered if in any
manner this man could have discovered his trick.
“What do you mean by calling me such names?” he blustered.
“I mean just what I have said; you are a fool, a liar, and a traitor. You
came here to deceive me!”
“To deceive you?”
“Yes.”
“How?”
“With that thing!” said the man, pointing at the oilskin envelope. “It
does not contain the message!”
Packard was astounded, but he resolved to make a good bluff.
“What are you saying?” he exclaimed, pretending to be much
astonished. “What do you mean?”
“I mean that I know your game to beat me out of five hundred
dollars! I mean that I was watching you last night! I mean that I saw
you when you went to Merriwell and gave the message to him with
your own hand!”
Roland gasped.
“Went to him—and gave him—the message?” he faltered. “Why,
man, you are——” Then he paused, uttering a little cry, as a sudden
light broke on him.
It was Oliver this fellow had watched! It was Oliver he had seen give
the fake envelope to Merriwell!
“You are mistaken,” he said swiftly, although he could not quite see
how he was going to make things clear. “I have a twin brother who
looks exactly like me. You saw him.”
For one moment Mescal seemed surprised, and then a dangerous
laugh came from his lips.
“And what was your twin brother doing with the message?” he
demanded.
Roland choked and hesitated. That hesitation seemed to fan the
man to a burst of fury.
“Fool!” he hissed, crouching. “You have tried to deceive the wrong
man! Had you known me better you would not have done so! In my
body flows the blood of the Spaniard, and I never forgive an injury!
You betrayed me, and I will settle with you as we settle such scores
in the West!”
Out flashed a slender dagger in his hand. Roland uttered a cry of
fear as Mescal leaped upon him. The student tried to defend himself,
but Mescal’s blade rose and fell.
“You devil!” gasped Packard. “You have stabbed me.”
Then, as Roland sank to his knees, Mescal broke away, flung the
blood-stained dagger on the floor, and bounded to the door. One
backward look he took as he disappeared, seeing the bleeding youth
upon the floor.
Then he fled from the hotel and from New Haven.
Packard was not fatally wounded. The dagger had pierced the
muscle of his arm, and the point had penetrated his side as far as a
rib. The wound in the arm was the most painful, and the other was
not dangerous. In the hospital Roland was skilfully treated, but he
persistently refused to tell how or by whom he had been wounded.
Nor would he stay in the hospital when he found that his wound was
not at all dangerous if properly cared for. He came out that afternoon
and returned to the college.
He found the afternoon exercises on the campus taking place. The
place was like an open arena, with temporary seats rising in tiers all
round it. Those seats were packed with human beings, spectators
and friends of the students. Already the classes had marched in, led
by the band, and assembled on the benches in the middle of the
arena, where they now sat sedately smoking long clay pipes and
wearing caps and gowns. They were listening to the historians of the
class, who were reading the class histories.
Packard looked on, feeling that something was occurring in which he
had no part and no interest. His arm was in a sling, and this last
enemy of Merriwell at Yale looked a forlorn and wretched figure.
The histories read by the different historians had been full of hits
upon the various members of the class. As a man’s name was called
his companions lifted him upon their shoulders, while his history was
given to the strained ears of the gathering. He was compelled to
submit gracefully, but some of those sharp hits caused the victims to
look like fresh-boiled lobsters.
The historian was reading when Packard reached a spot where he
could see and hear. Bruce Browning was held aloft upon the
shoulders of his fellows. When it was finished, Browning was
lowered, and up came Bart Hodge as his name was mentioned.
“Merriwell’s friends!” muttered Packard bitterly. “Everybody seems to
be Merriwell’s friend to-day. I’m the only one of the whole howling
pack who has remained his enemy. He has conquered them all, but
I’ll conquer him!”
Then Hodge was lowered. There was a stir. The name of Merriwell
came from the lips of the historian. Instantly something remarkable
took place. Merry was lifted and held aloft, but every man on these
benches rose to his feet. It was a tribute to Frank, and the great
crowd of watching spectators caught the feeling. Up rose that mass
of men and women and youths and girls in one great surge, standing
for the moment to do honor to the most famous college man in the
world. It was a spectacle never forgotten at Yale.
Then those students who were not holding Frank aloft sat down, and
the spectators followed their example.
The historian, his voice ringing out clear and strong, delivered a
blood-stirring eulogy on Merriwell.
“Bah!” muttered Packard, and, sick at heart, he slunk away, unwilling
to listen to those words of adulation for one he hated with undying
intensity.
Late that afternoon, when the exercises were all over, Oliver Packard
found Roland in the room they had occupied together. Oliver was
surprised when he saw his brother’s arm in a sling, and he asked
what had happened.
“None of your business!” answered Roland surlily.
“You are hurt?” exclaimed Oliver, forgetting that he had vowed he
would take no further interest in his wayward brother. “What is it,
Roll! Won’t you tell me how badly you are hurt?”
“Go to the devil!” snarled Roland.
Oliver sat down, a look of sadness on his face. For some time he sat
in silence; but he spoke at last.
“Where were you while the exercises were taking place to-day?” he
asked.
“That’s my business,” said Roland.
“You should have been there. If you had, it’s possible your arm would
not be in a sling now. Roland, I have returned the message to
Merriwell, and I feel that he will take no action against you. I did not
ask him not to do so, for I have been forced to ask him so many
times before that I was ashamed.”
“Then I owe you no thanks.”
“No; but you do owe him something. Is the last spark of honor and
the last particle of justice driven from your heart? Can’t you see
where you have placed yourself by your conduct toward this man,
who to-day has been honored as no Yale man ever before was
honored?”