250 
INTERNATIONAL TRADE 
Suppose that the prices of both imported and exported goods are 
known, and that indices of these prices have been computed. We 
know then whether the prices of imports in any given year are 
higher or lower than in the year selected as base; and so as to the 
prices of exports. If now imports and exports in each single year 
are the same in money value, it follows that a change in prices 
registers accurately a change in physical quantity. If prices of 
exports have fallen, a given money value means a larger quantity ; 
and conversely, if prices rise, a given money value means a smaller 
quantity. The mere movement of import and export prices thus 
registers changes in the physical quantities exchanged, if the total 
money value of imports in each year equals the money value of 
exports. The movement of prices shows the direction of the 
changes in physical quantities, and so of the changes in the net 
barter terms. The relation obviously is inverse. As export 
prices fall, more of exports are given; as import prices rise, less of 
imports are received. What is shown (to repeat) is merely whether 
more or less exports are bartered for a given quantity of imports 
than were bartered in a preceding year. We ascertain not whether 
the terms of trade in any year are in themselves advantageous or 
favorable, but only whether they have become more or less favor- 
able than in the preceding year. 
The method would be equally applicable if the imports and 
exports, tho not equal to each other in money value from year to 
year, maintained a constant proportion. If the imports were in 
money regularly 25 per cent greater than the exports, the recip- 
rocals of the import and export prices would still show the rela- 
tions of the changes in physical quantities. Their course would 
of itself suffice to show whether a more or less volume of exports 
was going out in exchange for a given volume of imports. In 
either case — equality or constant proportion — we can follow the 
direction of changes in the net barter terms of trade. 
But, as need hardly be said, the suppositions underlying this 
method do not conform to fact. The imports and exports of 
no modern country are equal to each other in money value; nor 
do they bear a constant proportion to each other. In the case of