cannot dominate it, in the sense that there is an improvement in the real income of the transferor, provided that the initial free trade equilibrium is stable (cf. Samuelson, 1941, and Mundell, 1968, pp. 1721). Recently, Harry Johnson and I referred to the analogy between the transfer of purchasing power between countries in the world economy and the transfer of purchasing power between factor-owners in a closed economy (Krauss and Johnson, 1974, Chapter IV). In this case of internal income redistribution in a closed economy, it is also true that the transferor cannot gain net if the general equilibrium adjustment is favourable to its factors of production, provided the initial closed economy equilibrium is stable. The Krauss-Johnson analysis raises an interesting question: would it still be true that the transferor could not gain net when the initial equilibrium is stable if the internal income redistribution between factor-owners were to be effected in the context of an open rather than a closed economy, when the country in question possessed unexploited monopoly-monopsony power in international markets under free trade? The answer is no. The reason is that the initial position of the economy within which the transfer takes place is not Pareto-optimal when there is income redistribution between factor-owners in an open economy with monopoly-monopsony power in international markets; hence, if the income redistribution increases potential welfare, it is possible for the transferor to be at least no worse off and for the transferee to gain when the initial equilibrium is stable. This is in contrast to both the closed-economy case and the case when there is a redistribution of purchasing power between countries from free trade, where the initial position of the economy within which the transfer takes place is Paretooptimal (the relevant economy being the world in the latter case), so