88 AUSTRALIA'S RELATIVE DISADVANTAGE IN
things exchanged in international trade always adjusts itself
bo bring demand to the exact level of supply. It is this flue-
buating ratio of exchange that must now be kept in mind.
The next advance in the theory of international trade is due
bo Taussig, who distinguishes the ratio at which international
barter in goods takes place from the relative advantage or dis-
advantage of the barter to any one country compared with
similar previous exchanges.! Just as one bidder at auction will
buy better than another, so will a country acquire its purchases
In one year more cheaply in terms of its own labour than in
another year. Taussig thus distinguishes between the nef barter
terms of trade, i.e. the ratio measured by price at which one
country exchanges its products for those of another, and the
gross barter terms of trade which take into account both the value
and advantage of the trade. As labels for the ideas which they
are meant to convey the words ‘net’ and ‘gross’ are not ideal ;
and, indeed, may even be misleading. In default of better, how-
ever, they must continue to serve; but it will be necessary to
examine their connotation a little more fully. The net barter terms
of trade merely denote the basis on which goodsexchange for goods
without regard for any other. consideration whatsoever. The
ratio of exchange and that alone is the central fact to be kept in
mind. This idea of exchange ratio with reference to the complex
of international trade is something of an abstraction; but as
a measure of the advantage of barter it is nevertheless very
useful in theoretical discussion of the conditions upon which
trade will result between two countries, and of the range within
which the exchange of goods will be possible. In considering
the net barter terms of trade nothing enters into discussion
except the monetary conditions governing the sale and purchase
of merchandise ; and its application will be clear to all who are
familiar with Professor Taussig’s writings on the subject of
international trade.
Gross barter terms of trade, on the other hand, have reference
bo the total Tecorded value of goods exchanged for all reasons,
5.8. in exchange for other goods, as the visible tokens of borrowed
capital, as payment for interest on that borrowed capital, for
freight, insurance, or other services. The aggregate of these
transactions is the aspect which has real significance because
! Taussig, International Trade, pp. 113 ef seq.