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.