Solution manual for fundamentals of economics 6th edition by boyes melvin isbn 1133956106 9781133956 by willie.lipscomb376

SOLUTION MANUAL FOR FUNDAMENTALS OF ECONOMICS 6TH

EDITION BY BOYES MELVIN ISBN 1133956106 9781133956105

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CHAPTER 2 Markets and the Market Process

FUNDAMENTAL QUESTIONS

How does the market process work?

What is demand?

What is supply?

How is price determined by demand and supply?

What causes price to change?

TEACHING OBJECTIVES

The purpose of this chapter is twofold. The first is to introduce the different allocation mechanism systems, and the second is to develop the concepts of demand and supply and explain how they combine to produce equilibrium prices and quantities.

The unique features of this chapter are the explanation of the functioning of the market process and a discussion of market equilibrium in the real world

The concepts that warrant special coverage are the construction of demand and supply curves, how a movement along one curve compares to a shift in the entire curve, and how equilibrium prices and quantities are obtained. Reasons for changes in equilibrium prices are also shown as shifts in the demand and/or supply curves.

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1. How are goods and services allocated? 2 3 4 5 6

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KEY TERMS

efficienc

y demand law of demand demand schedule demand curve market demand quantity demanded determinants of demand substitute goods complementary goods supply law of supply determinants of supply supply schedule supply curve equilibrium surplus shortage

LECTURE OUTLINE AND TEACHING STRATEGIES

1. How are goods and services allocated?

The ways inputs can be utilized to serve the needs of consumers are called the allocation mechanisms The market (price), government, random choice, and the first-come, first-served mechanisms are the most commonly used allocation mechanisms

Teaching Strategy: Using the exercise in Preview in the text, survey the class about their response to the different situations. This is an excellent way of introducing the students to the notion of market mechanism and other means of allocating resources You should expect a great deal of debate about the different allocation mechanisms

1. Efficiency: If an allocation mechanism is efficient, it means that it best satisfies the needs and wants of a society compared to the other allocation mechanisms A system of markets and prices is often the most efficient way of allocating scarce resources. As a result, it is predominantly used in most industrial countries today.

2. Self-interest: When economists assume people are self-interested, they do not mean people are mean-spirited or selfish, but are pursuing ends that best suit their needs and wants

3. Alternatives to market allocation: In some cases, the market system is not the best. One reason for this is that for some goods and services, such as health care and defense, people do not like the outcome of the market system. Another reason is that the market system is inefficient under some

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Chapter 2: Markets and the Market Process

Chapter 2: Markets and the Market Process 13

circumstances When the market is not the best system, the government is often called on to allocate resources and goods.

Disagreement with the market outcome

Inefficiency

Teaching Strategy: Divide the class into groups and ask each group to make a list of situations where they consider the market outcome is not efficient Select one group to share their list with the class and choose another group to react to the first group’s list. Then repeat the exercise with other groups. At the end, point out that the market system is not the best available allocation mechanism in some cases, although it is in most cases.

2. How does the market process work?

A market is defined as a place where buyers and sellers get together and set prices and quantities.

Teaching Strategy: Give real-world examples of markets that students can conceptualize, for example, the market for X-Box, for illegal drugs, or for a local painter working on a cash-only basis

The market process guides producers to produce goods and services demanded by consumers at the lowest possible price As a result, those firms that cannot use resources most efficiently have to leave the market Thus, the market process brings about efficiency and increases consumer welfare Some have compared market efficiencies to economic Darwinism: survival of the fittest

3. What is demand?

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The law of demand: The quantity of a well-defined good or service that people are willing and Field Code Changed able to purchase during a particular period of time decreases as the price of that good rises, ceteris paribus Be sure to define this term

There are two points that economists advance to argue for a downward-sloping demand curve the income and substitution effects. The income effect takes place when a change in the price of a good alters the consumers’ purchasing power When the price of a good changes, and in turn the demand for a substitute good changes, the substitution effect is at work.

Teaching Strategy: When beer prices fall during a Friday afternoon happy hour, bar patrons substitute more beer for other goods they could consume (the substitution effect). In addition, the increase in their purchasing power due to the less expensive beer allows them to buy more pretzels and pizza (the income effect).

2. The demand schedule is a list of the quantities of a good that consumers demand at different

Field Code Changed prices, ceteris paribus

Teaching Strategy: Pass out slips of paper and ask students what price they would pay for an A in the course Generate a demand schedule with the results

3. The demand curve is a graph constructed from the data in the demand schedule. Field Code Changed

Teaching Strategy: Derive a demand curve from the demand schedule created in the teaching strategy above

4. A market demand curve is the horizontal summation of all individual demand curves. Field Code Changed

5. Compare a movement along a demand curve, a change in quantity demanded, to a shift in the Field Code Changed entire curve, a change in demand. The determinants of demand are income, tastes, the prices of related goods, expectations, and the number of buyers.

Teaching Strategy: Consider using a mnemonic to help students appreciate the various forces that can cause a change in demand: TYPEN

T = tastes

Y = income

P = price of related goods

E = expectations

N = number of consumers

Teaching Strategy: Ask your students to reconsider their demand for an A after receiving $1,000 in lottery winnings.

4. What is supply?

1. The law of supply: The quantity of a good producers will sell is positively related to price, ceteris paribus

Teaching Strategy: Focus the law of supply around the profit motive of producers, that is, self- interest

2. The supply curve is composed of all the combinations of prices and quantities supplied that are listed in the supply schedule.

3. The market supply curve is the summation of all the individual supply curves. It is the horizontal summation the total amount provided by all producers at each price

4. A change in supply occurs when the quantity supplied at every price changes, and a change in quantity supplied occurs when only the product price changes while all other factors hold constant

Again, consider using a mnemonic to help students appreciate the various forces than can cause a change in supply: PPETN

P = price of resources

P = price of related goods

E = expectations

T = technology

N = number of producers

Teaching Strategy: Show a change in quantity supplied as a movement along a stationary supply curve, as shown in Figure 4 in the text A change in supply occurs when the quantity supplied at every price changes due to a change in a factor other than product price, such as resource prices, technology, producer expectations, number of producers, or prices of related goods.

Teaching Strategy: Show how an increase in rent paid by the DVD store will cause the supply curve for DVDs to shift to the left Refer to Figure 4 in the text

5. How is price determined by demand and supply?

1. Equilibrium is the price where quantity demanded equals quantity supplied.

Teaching Strategy: Ask students which blade of a scissors cuts paper Answer, à la Alfred Marshall, both, just as supply and demand determine price

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Chapter 2: Markets and the Market Process

Chapter 2: Markets and the Market Process 15

6. What causes price to change?

2. Demand shifts

Teaching Strategy: Have students name fad items from their childhood or adolescence Today’s students may mention Tickle Me Elmo, X-box, or Beanie Babies. Older students may mention Rubik’s cubes or Cabbage Patch dolls Show how changes in demand for “hot” items affected the equilibrium price Have students use TYPEN to think of other factors that would cause a demand shift

3. Supply shifts

Teaching Strategy: Ask students how much they paid for their first personal computers versus how much they paid for their most recent computer. Most students will have paid less (if they paid for it and not their parents!) Show the results of changes in technology in the market on the equilibrium price and quantity of personal computers Have students use PPETN to think of other factors that would cause a supply shift

OPPORTUNITIES FOR DISCUSSION

1. Why does the demand curve slope down? Why does the supply curve slope up?

2. How do shortages and surpluses appear in a market? How are disequilibria eliminated?

ANSWERS TO EXERCISES

a. Demand curve shifts in b. Demand curve shifts in

d. Movement along the demand curve and movement along the supply curve. Demand curve shifts in

e. Demand curve shifts in.

a F. An increase in demand is represented by a shift outward of the demand curve

b. F. An increase in quantity supplied is represented by a move up the supply curve

c. T. The demand curve shifts out, leading to an increase in the price. d. F. The supply curve shifts out, leading to a decline in the price

3. Equilibrium price = $5; equilibrium quantity = 300 At a price of $10, the quantity supplied is 975, and the quantity demanded is only 150 There is a surplus of 825 The surplus will cause the supplier to lower the price Price must decline to $5 At a price of $2, there is a shortage of 280 The producer will raise the price until the shortage no longer exists Price must increase to $5.

4. California and Florida citrus are substitutes Thus, as the quantity of California citrus declines, the supply curve shifts in and the price of California citrus rises People shift their purchases from California to Florida citrus The demand for Florida citrus rises As a result, the price of Florida citrus rises.

5. People who buy the Polo line are also buying the prestige that comes with it The prestige rises as the price rises Thus, in our demand and supply curves we would look at the Polo brand and the

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JCPenney brand as two different goods. The law of demand states that for the JCPenney brand, the higher the price, the lower the quantity demanded, everything else the same Similarly, the higher the price of the Polo brand, the lower the quantity demanded, everything else being the same

6. No. The price of trees rises because the demand curve shifts out; the demand for trees rises. Field Code Changed

7. The demand for U S oranges has increased due to a rise in foreign demand for the domestic Field Code Changed product (U S oranges) This may result from an increase in Japanese consumers’ income or the depreciation of the U S dollar against the Japanese yen (or the appreciation of the yen against the dollar) This creates a rightward shift in the demand curve, indicating a rise in demand for oranges.

8. The cost of supplying the packaged meat will rise as a result of the new labeling law This means Field Code Changed that the supply curve will shift to the left (or up) As a result, the price of meat will rise

Chapter 2: Markets and the Market Process

Chapter 2: Markets and the Market Process 17

a. The freeze in Florida would shift the supply curve to the left, creating a decline in quantity demanded and an increase in price

b. This would increase the supply of oranges and lower the orange juice prices as the supply curve shifts out to the right

c. This ban would shift the supply curve for oranges to the left, creating a decline in the quantity demanded and an increase in the orange juice prices

10. When the supply of a product rises, it means that the supply curve shifts to the right due to nonprice factors, such as technological changes, whereas changes in the quantity supplied are reflected in movements along the (same) supply curve because of the changes in the price Changes (shifts) in the demand curve for television sets could raise the price of television sets if there is no change in the supply to offset the increase in the demand

ACTIVE LEARNING EXERCISE

The purpose of this exercise is to allow students to observe how equilibrium prices and quantities are set in goods markets It also reinforces the point that market equilibrium is a dynamic process and equilibrium quantities change with movements in prices. Finally, students get another opportunity to practice the construction of supply and demand curves

Materials Needed

Green and red tickets green for buyer, red for seller

Five types of buyer sheets noting the following values for each buyer type:

Five types of seller sheets noting the following costs for each seller type:

Each buyer values the first item purchased more than the second, and the second more than the third

Each seller finds the cost of producing and selling the second item higher than the first, and the third higher than the second.

Open the market Buyers hold aloft green tickets, and sellers hold aloft red tickets Then they call out offered prices Once a deal is set, it is recorded. Each buyer has two goods to buy, each seller two goods to sell Buyer profits are value less price paid; seller profits are price received less costs

Carry out several trading sessions, and construct supply and demand curves plotting price on the vertical axis and quantity on the horizontal axis

Field Code Changed Field Code Changed

Code

Number of Goods Buyer 1 Buyer 2 Buyer 3 Buyer 4 Buyer 5 1 28 35 27 25 26 2 22 20 21 24 23 3 17 18 15 19 16

Field Code Changed Field Code Changed Field Code Changed Field Code Changed Field

Changed

Number of Goods Seller 1 Seller 2 Seller 3 Seller 4 Seller 5 1 18 16 0 15 17 2 22 21 19 27 20 3 24 25 26 28 27

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would unquestionably be soon absorbed, while the ultimate result might be the partition of all South America between the various European Powers. …

"The people of the United States have learned in the school of experience to what extent the relations of States to each other depend not upon sentiment nor principle, but upon selfish interest. They will not soon forget that, in their hour of distress, all their anxieties and burdens were aggravated by the possibility of demonstrations against their national life on the part of Powers with whom they had long maintained the most harmonious relations. They have yet in mind that France seized upon the apparent opportunity of our Civil War to set up a Monarchy in the adjoining State of Mexico. They realize that, had France and Great Britain held important South American possessions to work from and to benefit, the temptation to destroy the predominance of the Great Republic in this hemisphere by furthering its dismemberment might have been irresistible. From that grave peril they have been saved in the past, and may be saved again in the future, through the operation of the sure but silent force of the doctrine proclaimed by President Monroe. …

"There is, then, a doctrine of American public law, well founded in principle and abundantly sanctioned by precedent, which entitles and requires the United States to treat as an injury to itself the forcible assumption by an European Power of political control over an American State. The application of the doctrine to the boundary dispute between Great Britain and Venezuela remains to be made, and presents no real difficulty. Though the dispute relates to a boundary-line, yet, as it is between States, it necessarily imports political control to be lost by one party and gained by the other. The political control at stake, too, is of no mean importance, but concerns a domain of great extent the British claim, it will be remembered, apparently expanding in two years some 33,000 square miles and, if it also directly involves the command of

the mouth of the Orinoco, is of immense consequence in connection with the whole river navigation of the interior of South America. It has been intimated, indeed, that in respect of these South American possessions, Great Britain is herself an American State like any other, so that a controversy between her and Venezuela is to be settled between themselves as if it were between Venezuela and Brazil, or between Venezuela and Colombia, and does not call for or justify United States intervention. If this view be tenable at all, the logical sequence is plain. Great Britain as a South American State is to be entirely differentiated from Great Britain generally; and if the boundary question cannot be settled otherwise than by force, British Guiana with her own independent resources, and not those of the British Empire, should be left to settle the matter with Venezuela an arrangement which very possibly Venezuela might not object to. But the proposition that an European Power with an American dependency is for the purposes of the Monroe doctrine to be classed not as an European but as an American State will not admit of serious discussion. If it were to be adopted, the Monroe doctrine would be too valueless to be worth asserting.

…

"The declaration of the Monroe Message that existing Colonies or dependencies of an European Power would not be interfered with by the United States means Colonies or dependencies then existing with their limits as then existing. So it has been invariably construed, and so it must continue to be construed, unless it is to be deprived of all vital force. Great Britain cannot be deemed a South American State within the purview of the Monroe doctrine, nor, if she is appropriating Venezuelan territory, is it material that she does so by advancing the frontier of an old Colony instead of by the planting of a new Colony. The difference is matter of form, and not of substance, and the doctrine if pertinent in the one case must be in the other also. It is not admitted, however, and therefore cannot be assumed, that Great Britain is in fact

usurping dominion over Venezuelan territory. While Venezuela charges such usurpation Great Britain denies it, and the United States, until the merits are authoritatively ascertained, can take sides with neither. But while this is so while the United States may not, under existing circumstances at least, take upon itself to say which of the two parties is right and which wrong it is certainly within its right to demand that the truth shall be ascertained. …

"It being clear, therefore, that the United States may legitimately insist upon the merits of the boundary question being determined, it is equally clear that there is but one feasible mode of determining them, viz., peaceful arbitration. The impracticability of any conventional adjustment has been often and thoroughly demonstrated. Even more impossible of consideration is an appeal to arms a mode of settling national pretensions unhappily not yet wholly obsolete. If, however, it were not condemnable as a relic of barbarism and a crime in itself, so one-sided a contest could not be invited nor even accepted by Great Britain without distinct disparagement to her character as a civilized State. Great Britain, however, assumes no such attitude. On the contrary, she both admits that there is a controversy, and that arbitration should be resorted to for its adjustment. But, while up to that point her attitude leaves nothing to be desired, its practical effect is completely nullified by her insistence that the submission shall cover but a part of the controversy that, as a condition of arbitrating her right to a part of the disputed territory, the remainder shall be turned over to her. If it were possible to point to a boundary which both parties had ever agreed or assumed to be such either expressly or tacitly, the demand that territory conceded by such line to British Guiana should be held not to be in dispute might rest upon a reasonable basis. But there is no such line. The territory which Great Britain insists shall be ceded to her as a condition of arbitrating her claim to other territory has never been admitted to belong to her.

It has always and consistently been claimed by Venezuela. Upon what principle except her feebleness as a nation is she to be denied the right of having the claim heard and passed upon by an impartial Tribunal? No reason or shadow of reason appears in all the voluminous literature of the subject. …

"In these circumstances, the duty of the President appears to him unmistakable and imperative. Great Britain's assertion of title to the disputed territory, combined with her refusal to have that title investigated, being a substantial appropriation of the territory to her own use, not to protest and give warning that the transaction will be regarded as injurious to the interests of the people of the United States, as well as oppressive in itself, would be to ignore an established policy with which the honour and welfare of this country are closely identified. While the measures necessary or proper for the vindication of that policy are to be determined by another branch of the Government, it is clearly for the Executive to leave nothing undone which may tend to render such determination unnecessary. You are instructed, therefore, to present the foregoing views to Lord Salisbury by reading to him this communication (leaving with him a copy should he so desire), and to reinforce them by such pertinent considerations as will doubtless occur to you. They call for a definite decision upon the point whether Great Britain will consent or will decline to submit the Venezuelan boundary question in its entirety to impartial arbitration. It is the earnest hope of the President that the conclusion will be on the side of arbitration, and that Great Britain will add one more to the conspicuous precedents she has already furnished in favour of that wise and just mode of adjusting international disputes. If he is to be disappointed in that hope, however a result not to be anticipated, and in his judgment calculated to greatly embarrass the future relations between this country and Great Britain it is his wish to be made acquainted with the fact at such early date as will

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enable him to lay the whole subject before Congress in his next Annual Message."

Great Britain, Parliamentary Publications (Papers by Command:

United States Number 1, 1896, pages 13-21).

VENEZUELA: A. D. 1895 (November).

The British Guiana boundary question. Replies of Lord Salisbury to Secretary Olney.

The reply of Lord Salisbury was not written until the 26th of November. It was then given in two despatches, bearing the same date, one devoted entirely to a discussion of "the Monroe doctrine" and of the argument founded on it by Mr. Olney; the other to a rehearsal of the Venezuela controversy from the standpoint of the British government. In the communication first mentioned he wrote:

"The contentions set forth by Mr. Olney in this part of his despatch are represented by him as being an application of the political maxims which are well known in American discussion under the name of the Monroe doctrine. As far as I am aware, this doctrine has never been before advanced on behalf of the United States in any written communication addressed to the Government of another nation; but it has been generally adopted and assumed as true by many eminent writers and politicians in the United States. It is said to have largely influenced the Government of that country in the conduct of its foreign affairs; though Mr. Clayton, who was Secretary of State under President Taylor, expressly stated that that Administration had in no way adopted it. But during the period that has elapsed since the Message of President Monroe was delivered in 1823, the doctrine has undergone a very notable development, and the aspect which it now presents in the hands of Mr. Olney differs widely from its character when it first issued from the pen of its author. The two propositions which

in effect President Monroe laid down were, first, that America was no longer to be looked upon as a field for European colonization; and, secondly, that Europe must not attempt to extend its political system to America, or to control the political condition of any of the American communities who had recently declared their independence. The dangers against which President Monroe thought it right to guard were not as imaginary as they would seem at the present day. … The system of which he speaks, and of which he so resolutely deprecates the application to the American Continent, was the system then adopted by certain powerful States upon the Continent of Europe of combining to prevent by force of arms the adoption in other countries of political institutions which they disliked, and to uphold by external pressure those which they approved. … The dangers which were apprehended by President Monroe have no relation to the state of things in which we live at the present day. … It is intelligible that Mr. Olney should invoke, in defence of the views on which he is now insisting, an authority which enjoys so high a popularity with his own fellow-countrymen. But the circumstances with which President Monroe was dealing, and those to which the present American Government is addressing itself, have very few features in common. Great Britain is imposing no 'system' upon Venezuela, and is not concerning herself in any way with the nature of the political institutions under which the Venezuelans may prefer to live. But the British Empire and the Republic of Venezuela are neighbours, and they have differed for some time past, and continue to differ, as to the line by which their dominions are separated. It is a controversy with which the United States have no apparent practical concern. It is difficult, indeed, to see how it can materially affect any State or community outside those primarily interested, except perhaps other parts of Her Majesty's dominions, such as Trinidad. The disputed frontier of Venezuela has nothing to do with any of the questions dealt with by President Monroe. It is not a question of the colonization by a European Power of any portion of America. It is not a question of the imposition

upon the communities of South America of any system of government devised in Europe. It is simply the determination of the frontier of a British possession which belonged to the Throne of England long before the Republic of Venezuela came into existence.

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"But even if the interests of Venezuela were so far linked to those of the United States as to give to the latter a 'locus standi' in this controversy, their Government apparently have not formed, and certainly do not express, any opinion upon the actual merits of the dispute. The Government of the United States do not say that Great Britain, or that Venezuela, is in the right in the matters that are in issue. But they lay down that the doctrine of President Monroe, when he opposed the imposition of European systems, or the renewal of European colonization, confers upon them the right of demanding that when a European Power has a frontier difference with a South American community, the European Power shall consent to refer that controversy to arbitration; and Mr. Olney states that unless Her Majesty's Government accede to this demand, it will 'greatly embarrass the future relations between Great Britain and the United States.' Whatever may be the authority of the doctrine laid down by President Monroe, there is nothing in his language to show that he ever thought of claiming this novel prerogative for the United States. … I will not now enter into a discussion of the merits of this method of terminating international differences. It has proved itself valuable in many cases; but it is not free from defects, which often operate as a serious drawback on its value. It is not always easy to find an Arbitrator who is competent, and who, at the same time, is wholly free from bias; and the task of insuring compliance with the Award when it is made is not exempt from difficulty. …

"In the remarks which I have made, I have argued on the theory

that the Monroe doctrine in itself is sound. I must not, however, be understood as expressing any acceptance of it on the part of Her Majesty's Government. It must always be mentioned with respect, on account of the distinguished statesman to whom it is due, and the great nation who have generally adopted it. But international law is founded on the general consent of nations; and no statesman, however eminent, and no nation, however powerful, are competent to insert into the code of international law a novel principle which was never recognized before, and which has not since been accepted by the Government of any other country. … Though the language of President Monroe is directed to the attainment of objects which most Englishmen would agree to be salutary, it is impossible to admit that they have been inscribed by any adequate authority in the code of international law; and the danger which such admission would involve is sufficiently exhibited both by the strange development which the doctrine has received at Mr. Olney's hands, and the arguments by which it is supported, in the despatch under reply. In defence of it he says: 'That distance and 3,000 miles of intervening ocean make any permanent political union between a European and an American State unnatural and inexpedient will hardly be denied. But physical and geographical considerations are the least of the objections to such a union. Europe has a set of primary interests which are peculiar to herself; America is not interested in them, and ought not to be vexed or complicated with them.' … The necessary meaning of these words is that the union between Great Britain and Canada; between Great Britain and Jamaica and Trinidad; between Great Britain and British Honduras or British Guiana are 'inexpedient and unnatural.' President Monroe disclaims any such inference from his doctrine; but in this, as in other respects, Mr. Olney develops it. He lays down that the inexpedient and unnatural character of the union between a European and American State is so obvious that it 'will hardly be denied.' Her Majesty's Government are prepared emphatically to deny it on behalf of both the British and American people who are subject to her

Crown."

In his second despatch, Lord Salisbury drew the conclusions of his government from the facts as seen on the English side, and announced its decision, in the following terms: "It will be seen … that the Government of Great Britain have from the first held the same view as to the extent of territory which they are entitled to claim as a matter of right. It comprised the coast-line up to the River Amacura, and the whole basin of the Essequibo River and its tributaries. A portion of that claim, however, they have always been willing to waive altogether; in regard to another portion, they have been and continue to be perfectly ready to submit the question of their title to arbitration. As regards the rest, that which lies within the so-called Schomburgk line, they do not consider that the rights of Great Britain are open to question. Even within that line they have, on various occasions, offered to Venezuela considerable concessions as a matter of friendship and conciliation, and for the purpose of securing an amicable settlement of the dispute. If as time has gone on the concessions thus offered diminished in extent, and have now been withdrawn, this has been the necessary consequence of the gradual spread over the country of British settlements, which Her Majesty's Government cannot in justice to the inhabitants offer to surrender to foreign rule, and the justice of such withdrawal is amply borne out by the researches in the national archives of Holland and Spain, which have furnished further and more convincing evidence in support of the British claims.

"Her Majesty's Government are sincerely desirous of being in friendly relations with Venezuela, and certainly have no design to seize territory that properly belongs to her, or forcibly to extend sovereignty over any portion of her population. They have, on the contrary, repeatedly expressed their readiness to submit to arbitration the conflicting claims of Great Britain and Venezuela to large tracts of

territory which from their auriferous nature are known to be of almost untold value. But they cannot consent to entertain, or to submit to the arbitration of another Power or of foreign jurists, however eminent, claims based on the extravagant pretensions of Spanish officials in the last century, and involving the transfer of large numbers of British subjects, who have for many years enjoyed the settled rule of a British Colony, to a nation of different race and language, whose political system is subject to frequent disturbance, and whose institutions as yet too often afford very inadequate protection to life and property. No issue of this description has ever been involved in the questions which Great Britain and the United States have consented to submit to arbitration, and Her Majesty's Government are convinced that in similar circumstances the Government of the United States would be equally firm in declining to entertain proposals of such a nature."

Great Britain, Papers by Command:

United States Number 1, 1896, pages 23-31.

VENEZUELA: A. D. 1895 (December).

Message of President Cleveland to the United States Congress on the Guiana boundary dispute.

As the replies given by Lord Salisbury showed no disposition on the part of the British government to submit its dispute with Venezuela to arbitration, President Cleveland took the subject in hand, and addressed to Congress, on the 17th of December, 1895, a special Message which startled the world by the peremptoriness of its tone.

"In my annual message addressed to the Congress on the 3d instant," he said, "I called attention to the pending boundary controversy between Great Britain and the Republic of Venezuela and recited the substance of a representation made by this Government to Her Britannic Majesty's Government suggesting reasons why such dispute should be submitted to arbitration for settlement and inquiring whether it would be so submitted. The answer of the British Government, which was then awaited, has since been received, and, together with the dispatch to which it is a reply, is hereto appended. Such reply is embodied in two communications addressed by the British prime minister to Sir Julian Pauncefote, the British ambassador at this capital. It will be seen that one of these communications is devoted exclusively to observations upon the Monroe doctrine, and claims that in the present instance a new and strange extension and development of this doctrine is insisted on by the United States; that the reasons justifying an appeal to the doctrine enunciated by President Monroe are generally inapplicable 'to the state of things in which we live at the present day,' and especially inapplicable to a

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controversy involving the boundary line between Great Britain and Venezuela.

"Without attempting extended argument in reply to these positions, it may not be amiss to suggest that the doctrine upon which we stand is strong and sound, because its enforcement is important to our peace and safety as a nation and is essential to the integrity of our free institutions and the tranquil maintenance of our distinctive form of government. It was intended to apply to every stage of our national life and can not become obsolete while our Republic endures. If the balance of power is justly a cause for jealous anxiety among the Governments of the Old World and a subject for our absolute non-interference, none the less is an observance of the Monroe doctrine of vital concern to our people and their Government. Assuming, therefore, that we may properly insist upon this doctrine without regard to 'the state of things in which we live' or any changed conditions here or elsewhere, it is not apparent why its application may not be invoked in the present controversy. If a European power by an extension of its boundaries takes possession of the territory of one of our neighboring Republics against its will and in derogation of its rights, it is difficult to see why to that extent such European power does not thereby attempt to extend its system of government to that portion of this continent which is thus taken. This is the precise action which President Monroe declared to be 'dangerous to our peace and safety,' and it can make no difference whether the European system is extended by an advance of frontier or otherwise.

"It is also suggested in the British reply that we should not seek to apply the Monroe doctrine to the pending dispute because it does not embody any principle of international law which 'is founded on the general consent of nations,' and that 'no statesman, however eminent, and no nation, however powerful, are competent to insert into the code of

international law a novel principle which was never recognized before and which has not since been accepted by the government of any other country.' Practically the principle for which we contend has peculiar, if not exclusive, relation to the United States. It may not have been admitted in so many words to the code of international law, but since in international councils every nation is entitled to the rights belonging to it, if the enforcement of the Monroe doctrine is something we may justly claim, it has its place in the code of international law as certainly and as securely as if it were specifically mentioned; and when the United States is a suitor before the high tribunal that administers international law the question to be determined is whether or not we present claims which the justice of that code of law can find to be right and valid.

"The Monroe doctrine finds its recognition in those principles of international law which are based upon the theory that every nation shall have its rights protected and its just claims enforced. Of course this government is entirely confident that under the sanction of this doctrine we have clear rights and undoubted claims. Nor is this ignored in the British reply. The prime minister, while not admitting that the Monroe doctrine is applicable to present conditions, states: 'In declaring that the United States would resist any such enterprise if it was contemplated, President Monroe adopted a policy which received the entire sympathy of the English Government of that date.'

"He further declares: 'Though the language of President Monroe is directed to the attainment of objects which most Englishmen would agree to be salutary, it is impossible to admit that they have been inscribed by any adequate authority in the code of international law.'

"Again he says: 'They [Her Majesty's Government] fully concur with the view which President Monroe apparently entertained, that any disturbance of the existing territorial distribution

in that hemisphere by any fresh acquisitions on the part of any European State would be a highly inexpedient change.'

"In the belief that the doctrine for which we contend was clear and definite, that it was founded upon substantial considerations, and involved our safety and welfare, that it was fully applicable to our present conditions and to the state of the world's progress, and that it was directly related to the pending controversy, and without any conviction as to the final merits of the dispute, 'but anxious to learn in a satisfactory and conclusive manner whether Great Britain sought under a claim of boundary to extend her possessions on this continent without right, or whether she merely sought possession of territory fairly included within her lines of ownership, this Government proposed to the Government of Great Britain a resort to arbitration as the proper means of settling the question, to the end that a vexatious boundary dispute between the two contestants might be determined and our exact standing and relation in respect to the controversy might be made clear.

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It will be seen from the correspondence herewith submitted that this proposition has been declined by the British Government upon grounds which in the circumstances seem to me to be far from satisfactory. It is deeply disappointing that such an appeal, actuated by the most friendly feelings toward both nations directly concerned, addressed to the sense of justice and to the magnanimity of one of the great powers of the world, and touching its relations to one comparatively weak and small, should have produced no better results.

"The course to be pursued by this Government in view of the present condition does not appear to admit of serious doubt. Having labored faithfully for many years to induce Great Britain to submit this dispute to impartial arbitration, and having been now finally apprised of her refusal to do so, nothing remains but to accept the situation, to recognize its

plain requirements, and deal with it accordingly. Great Britain's present proposition has never thus far been regarded as admissible by Venezuela, though any adjustment of the boundary which that country may deem for her advantage and may enter into of her own free will can not of course be objected to by the United States. Assuming, however, that the attitude of Venezuela will remain unchanged, the dispute has reached such a stage as to make it now incumbent upon the United States to take measures to determine with sufficient certainty for its justification what is the true divisional line between the Republic of Venezuela and British Guiana. The inquiry to that end should of course be conducted carefully and judicially, and due weight should be given to all available evidence, records, and facts in support of the claims of both parties. In order that such an examination should be prosecuted in a thorough and satisfactory manner, I suggest that the Congress make an adequate appropriation for the expenses of a commission, to be appointed by the Executive, who shall make the necessary investigation and report upon the matter with the least possible delay. When such report is made and accepted it will, in my opinion, be the duty of the United States to resist by every means in its power, as a willful aggression upon its rights and interests, the appropriation by Great Britain of any lands or the exercise of governmental jurisdiction over any territory which after investigation we have determined of right belongs to Venezuela.

"In making these recommendations I am fully alive to the responsibility incurred and keenly realize all the consequences that May follow. I am, nevertheless, firm in my conviction that while it is a grievous thing to contemplate the two great English-speaking peoples of the world as being otherwise than friendly competitors in the onward march of civilization and strenuous and worthy rivals in all the arts of peace, there is no calamity which a great nation can invite which equals that which follows a supine submission to wrong and injustice and the consequent loss of national self-respect and

honor, beneath which are shielded and defended a people's safety and greatness."

United States, Message and Documents (Abridgment, 1895-1896).

The recommendations of the President were acted upon with remarkable unanimity and promptitude in Congress, a bill authorizing the appointment of the proposed commission, and appropriating $100,000 for the necessary expenditure, being passed by the House on the day following the Message (December 17), and by the Senate on the 20th.

See (in this volume)

UNITED STATES OF AMERICA: A. D. 1895 (DECEMBER).

VENEZUELA: A. D. 1895-1896 (December-January).

Feeling in England and the United States over the boundary dispute.

See (in this volume)

UNITED STATES OF AMERICA: A. D. 1895-1896 (DECEMBER-JANUARY).

VENEZUELA: A. D. 1896-1899.

Appointment of the United States Commission to investigate the boundary question. Reopening of negotiations between the United States and Great Britain. The solution of the main difficulty found. Arbitration and its result.

The Commission authorized by the Congress of the United States to investigate and report on the true divisional line between British Guiana and Venezuela was named by the President of the United States, on the 1st of January, as follows:

David J. Brewer, Associate Justice of the Supreme Court of the United States;

Richard H. Alvey, Chief Justice of the Court of Appeals in the District of Columbia;

Andrew D. White, ex-President of Cornell University, and ex-Minister to Germany and Russia;

Daniel C. Gilman, President of Johns Hopkins University; Frederick H. Coudert, of New York.

The Commission was organized on the 4th by the election of Justice Brewer to be its President. Mr. S. Mallet Prevost was subsequently appointed Secretary. One of the first proceedings of the Commission was to address a letter to the Secretary of State, suggesting a friendly intimation to the governments of Great Britain and Venezuela that their assistance to it, in procuring unpublished archives and the like evidence, would be highly acceptable, and that "if either should deem it appropriate to designate an agent or attorney, whose duty it would be to see that no such proofs were omitted or overlooked, the Commission would be grateful for such evidence of good will." This overture was well received in England, and had an excellent effect. It was responded to by Lord Salisbury, with an assurance that Her Majesty's government would readily place at the disposal of the President of the United States any information at their command, and would communicate advance copies of documents soon to be published on the subject of the boundary line. Before the close of January the Commission had organized its work, with several experts engaged to assist on special lines. Professor Justin Winsor, Librarian of Harvard University, had undertaken to report on the early maps of the Guiana-Venezuela country. Professor George L. Burr, of Cornell University, was making ready to examine the Dutch archives in Holland, and Professor J. Franklin Jameson, of Brown University, was enlisted for other investigations.

Before these labors had gone far, however, the two

governments, of Great Britain and the United States, were induced to reopen a discussion of the possibility of an arbitration of the dispute. On the 27th of February, Mr. Bayard, the Ambassador of the United States at London, conveyed to Lord Salisbury a proposal from his government "that Her Majesty's Ambassador at Washington should be empowered to discuss the question at that capital with the Secretary of State," and that "a clear definition of the 'settlements' by individuals in the territory in dispute, which it is understood Her Majesty's Government desire should be excluded from the proposed submission to arbitration, should be propounded."

Lord Salisbury assented so far as to telegraph, on the same day, to Sir Julian Pauncefote: "I have agreed with the United States' Ambassador that, in principle, the matter may be discussed between the United States Government (acting as the friend of Venezuela) and your Excellency." But, a few days later (March 5), the British Premier and Foreign Secretary gave a broader range to the discussion, by recalling a correspondence that had taken place in the spring of 1895 between the then American Secretary of State, Mr. Gresham, and the British Ambassador, in contemplation of a general system of international arbitration for the adjustment of disputes between the two governments. Reviving that project, Lord Salisbury submitted the heads of a general arbitration treaty between the United States and Great Britain, which became a subject of discussion for some weeks, without offering much promise of providing for the settlement of the Venezuela dispute. In May, the correspondence returned to the latter subject more definitely, Lord Salisbury writing (May 22):

"From the first our objection has been to subject to the decision of an Arbiter, who, in the last resort, must, of necessity, be a foreigner, the rights of British colonists who have settled in territory which they had every ground for believing to be British, and whose careers would be broken,

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and their fortunes possibly ruined, by a decision that the territory on which they have settled was subject to the Venezuelan Republic. At the same time, we are very conscious that the dispute between ourselves and the Republic of Venezuela affects a large portion of land which is not under settlement, and which could be disposed of without any injustice to any portion of the colonial population. We are very willing that the territory which is comprised within this definition should be subjected to the results of an arbitration, even though some portion of it should be found to fall within the Schomburgk line." He proposed, accordingly, the creation of a commission of four persons, for the determination of the questions of fact involved, on whose report the two governments of Great Britain and Venezuela should endeavor to agree on a boundary line; failing which agreement, a tribunal of arbitration should fix the line, on the basis of facts reported by the Commission. "Provided always that in fixing such line the Tribunal shall not have power to include as the territory of Venezuela any territory which was bona fide occupied by subjects of Great Britain on the 1st January, 1887, or as the territory of Great Britain any territory bona fide occupied by Venezuelans at the same date."

Objections to this proposal, especially to its final stipulation, were raised by the government of the United States, and the negotiation looked unpromising again for a time; but at length, on the 13th of July, Mr. Olney made a suggestion which happily solved the one difficulty that had been, from the beginning, a bar to agreement between the two governments. "Can it be assumed," he asked, in a letter of that date, "that Her Majesty's Government would submit to unrestricted arbitration the whole of the territory in dispute, provided it be a rule of the arbitration, embodied in the arbitral agreement, that territory which has been in the exclusive, notorious, and actual use and occupation of either party for even two generations, or say for sixty years, shall

be held by the arbitrators to be the territory of such party?

In other words, will Her Majesty's Government assent to unrestricted arbitration of all the territory in controversy, with the period for the acquisition of title by prescription fixed by agreement of the parties in advance at sixty years?"

Lord Salisbury assented to the principle thus suggested, but proposed a shorter term of occupation than sixty years. Finally the term of fifty years was accepted on both sides, and from that point the arrangement of a Treaty of Arbitration between Great Britain and Venezuela went smoothly on. The good news that England and America were practically at the end of their dispute was proclaimed by Lord Salisbury, on the 9th of November, in a speech at the Lord Mayor's banquet, in London, when he said: "You are aware that in the discussion had with the United States on behalf of their friends in Venezuela, our question has not been whether there should be arbitration, but whether arbitration should have unrestricted application; and we have always claimed that those who, apart from historic right, had the right which attaches to established settlements, should be excluded from arbitration. Our difficulty for months has been to define the settled districts; and the solution has, I think, come from the suggestion of the government of the United States, that we should treat our colonial empire as we treat individuals; that the same lapse of time which protects the latter in civic life from having their title questioned, should similarly protect an English colony; but, beyond that, when a lapse could not be claimed, there should be an examination of title, and all the equity demanded in regard thereto should be granted. I do not believe I am using unduly sanguine words when I declare my belief that this has brought the controversy to an end."

On the 10th of November, the Secretary of the United States Commission appointed to investigate the disputed boundary published the following: "The statements of Lord Salisbury, as reported in the morning papers, make it probable that the boundary dispute now pending between Great Britain and Venezuela