CHAPTER 2 
ABSOLUTE DIFFERENCES IN COST 
WE begin with Case I. Consider first what would be the terms 
of trade within each country if both of the commodities were 
produced in each and were exchanged within each. Assume, that 
is, that the people of the two countries have nothing to do with each 
other. They go their own ways, quite without contact or trade 
between them. Assume further that the trade within each — 
this purely domestic trade — takes place as it would if the labor 
in each moved with complete freedom from occupation to occupa- 
tion, from industry to industry. The two commodities then are 
exchanged, in the United States and also in Germany, in proportion 
to the amounts of labor needed to produce them. In other words, 
we proceed, as regards exchanges taking place within a country, on 
the basis of a labor theory of value. It will appear in due time 
how important is this assumption, and in what ways it needs to 
be revised and qualified. For the present, we simplify the case 
by supposing not only barter between the two countries, but also 
barter within each on terms settled by equalization of the returns 
to labor. 
The figures for Case I, to repeat, are: 
In the U. S. 10 days’ labor produce 30 lbs. copper 
pp AS 10:7 » P 15 yds. linen 
therefore in the United States 30 copper = 15 linen. 
In Germany 10 days’ labor produce 15 lbs. copper 
it. Germany 10.7 7 » 30 yds. linen 
therefore in Germany 15 copper = 30 linen, or 7% copper = 15 linen. 
4 
There is a wide diversity between the terms of trade that would 
obtain within the two countries. In the United States 15 of linen 
would exchange for 30 of copper; in Germany 15 of linen for 73 
of copper.