ABSOLUTE DIFFERENCES IN COST 11 
a country, will be considered more at length as we proceed. The 
first and the main consequence in international trade is indicated 
in the simplest form by the figures just given. Barter terms of 
trade may emerge, and rewards to labor under which much more 
advantage accrues to one country than to another. And, to 
repeat, under the conditions here supposed, the difference in gain 
to the countries may be very great. The United States may gain 
a great deal from the trade and Germany but little; or Germany 
may gain a great deal and the United States but little. The barter 
terms may be highly favorable to Germany and but little favorable 
to the United States; or may be highly favorable to the United 
States and but little favorable to Germany. 
We proceed now to modify the suppositions still further for Case 
I, in such way as to come a step nearer the realities. Countries 
do not exchange products for products thru mass meeting votes 
or any other process of conscious bargaining. Goods are sold for 
money. To quote Ricardo’s phrase, “every transaction in com- 
merce is an independent transaction.” Linen will be sent from 
Germany to the United States only if it sells for a less price in 
Germany ; and copper will be sent from the United States to Ger- 
many only if it in turn sells for a less price in the United States. 
Our next step is to introduce the mechanism of money and prices. 
In doing so we still simplify the case. Suppose the circulating 
medium In the two countries to be the same, and to be gold. 
Assume that copper and linen are both sold for gold in the two 
countries, and that gold as well as the commodities moves freely 
from one country to the other. 
Go further with the process of preliminary simplification. 
Assume not only that gold is the currency of both countries, but 
also that the greater or less plenty of gold money affects prices. 
More money means higher prices, less money lower prices. We 
shall assume, in other words, the validity of what is called the 
quantity theory of money. It is not material whether we accept 
also another proposition which goes with the quantity theory, 
namely that prices rise or fall in precise proportion to the increase 
or decrease of the monetary supply. It suffices for the present