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              <text>"Where the trade-diverting effect is predominant, one at least of the member countries is bound to be injured, both may be injured, the two combined will suffer a net injury, and there will be injury to the outside world and to the world at large."</text>
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                <text>Trade flow is diverted from actually cost-efficient partner state to less efficient one</text>
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              <text>"Where the trade-creating force is predominant, one of the member must benefit, both may benefit, the two combined must have a net benefit, and the world at large benefits; but the outside world loses, in the short run at least, and can gain in the long-run only as the result of the general diffusion of the increased prosperity of the customs union area. "</text>
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                <text> Trade flows are redirected due to the formation of a free trade area or a customs union.</text>
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              <text>&lt;em&gt;R=Y(p-c)-YFm&lt;br /&gt;&lt;br /&gt;&lt;/em&gt;R = land rent; &lt;br /&gt;Y = yield per unit of land; &lt;br /&gt;c = production expenses per unit of commodity; &lt;br /&gt;p=market price per unit of commodity; &lt;br /&gt;F = freight rate (per agricultural unit, per mile); &lt;br /&gt;m=distance to market&lt;em&gt;&lt;br /&gt;&lt;/em&gt;</text>
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                <text>Thünen's theory of marginal productivity</text>
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                <text>The Isolated State</text>
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              <text>&lt;pre&gt; 83. Recapituation of the five different methods of employing
capitals.

    I have reckoned five different methods of employing capitals,
or of placing them so as to procure a profit.
    1st. To buy an estate, which brings in a certain revenue.
    2d. To employ money in undertakings of cultivation; in
leasing lands whose produce should render back, besides the
expences of farming, the interest on the advances, and a
recompense for the labour of him who employs his property and
attention in the cultivation.
    3d. To place a capital in some undertaking of industry or
manufactures.
    4th. To employ it in commerce.
    5th. To lend it to those who want it, for an annual interest.

    84. The influence which the different methods of employing
money have on each other.

    It is evident that the annual returns, which capitals, placed
in different employs, will produce, are proportionate to each
other, and all have relation to the actual rate of the interest
of money.

    85. Money invested in land, necessarily produces the least.

    The person who invests his money in land let to a solvent
tenant, procures himself a revenue which gives him very little
trouble in receiving, and which he may dispose of in the most
agreeable manner, by indulging all his inclinations. There is a
greater advantage in the purchase of this species of property,
than of any other, since the possession of it is more guarded
against accidents. We must therefore purchase a revenue in land
at a higher price, and must content ourselves with a less revenue
for an equal capital.

    86. Money on interest ought to bring a little more income,
than land purchased with an equal capital.

    He who lends his money on interest, enjoys it still more
peaceably and freely than the possessor of land, but the
insolvency of his debtor may endanger the loss of his capital. He
will not therefore content himself with an interest equal to the
revenue of the land which he could buy with an equal capital. The
interest of money lent, must consequently be larger than the
revenue of an estate purchased with the same capital; for if the
proprietor could find an estate to purchase of an equal income,
he would prefer that.

    87. Money employed in cultivation, manufactures, or commerce,
ought to produce more than the interest of money on loan.

    By a like reason, money employed in agriculture, in
manufactures, or in commerce, ought to produce a more
considerable profit than the revenue of the same capital employed
in the purchase of lands, or the interest of money on loan: for
these undertakings, besides the capital advanced, requiring much
care and labour, and if they were not more lucrative, it would be
much better to secure an equal revenue, which might be enjoyed
without labour. It is necessary then, that, besides the interest
of the capital, the undertaker should draw every year a profit to
recompence him for his care, his labour, his talents, the risque
he runs, and to replace the wear and tear of that portion of his
capital which he is obliged to invest in effects capable of
receiving injury, and exposed to all kinds of accidents.

    88. Meantime the freedom of these various employments are
limited by each other, and maintain, notwithstanding their
inequality, a species of equilibrium.

    The different uses of the capitals produce very unequal
profits; but this inequality does not prevent them from having a
reciprocal influence on each other, nor from establishing a
species of equilibrium among themselves, like that between two
liquors of unequal gravity, and which communicate with each other
by means of a reversed syphon, the two branches of which they
fill; there can be no height to which the one can rise or fall,
but the liquor in the other branch will be affected in the same
manner.
    I will suppose, that on a sudden, a great number of
proprietors of lands are desirous of setting them. It is evident
that the price of lands will fall, and that with a less sum we
may acquire a larger revenue; this cannot come to pass without
the interest of money rising, for the possessors of money would
chuse rather to buy lands, than to lend at a lower interest than
the revenue of the lands they could purchase. If, then, the
borrowers want to have money, they will be constrained to pay a
greater rate. If the interest of the money increases, they will
prefer lending it, to setting out in a hazardous manner on
enterprizes of agriculture, industry, and commerce: and they will
be aware of any enterprizes but those that produce, besides the
retribution for their trouble, an emolument by far greater than
the rate of the lender's produce. In a word, if the profits,
springing from an use of money, augment or diminish, the capitals
are converted by withdrawing them from other employings, or are
withdrawn by converting them to other ends, which necessarily
alters, in each of those employments, the proportion of profits
on the capital to the annual product. Generally, money converted
into property in land, does not bring in so much as money on
interest; and money on interest brings less than money used in
laborious enterprises: but the produce of money laid out in any
way whatever, cannot augment or decree without implying a
proportionate augmentation, or decrease in other employments of
money.&lt;/pre&gt;</text>
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