ABSOLUTE DIFFERENCES IN COST 9
it is here that the fundamental problems appear. Let the reader
attend to the phrase “barter terms of trade,” prepare for its
recurrence, bear in mind its meaning.
A word of explanation on this matter of phraseology may be
helpful. “Terms of trade” was suggested by Marshall.! “Terms
of exchange,” which at first may seem better, is confusing, for the
reason that “exchange” is so constantly used in connection with
the price of “bills of exchange” and the rates of “foreign ex-
change.” Unfortunately there is nothing in the English tongue
that corresponds to the German “Devisen.” As in so many other
problems of economics, we have retained the ways of common
speech, and we designate by the same word — “exchange” —
quite different things. The possibilities of misunderstanding will
be lessened if we use the phrase “terms of trade” to designate
the fundamental process of the traffic of goods for goods, and
restrict the use of “exchange” as much as possible to bills of
exchange and to dealings in them. To reduce still further the
possibilities of misunderstanding, I have modified Marshall's
phrase in the manner stated above, and shall speak of the
“barter terms of trade.”
Returning to our analysis, we simplify it by neglecting cost of
transportation. The most obvious effect of cost of transportation
is to narrow somewhat the range within which the terms of ex-
change are confined. If it costs one of copper to carry each batch of
copper from the United States to Germany, and also costs one of
copper to carry each batch of linen from Germany to the United
States, the limits within which the exchange can take place will
be 8% and 29 of copper for 15 of linen, not 7% and 30. At any
figure above 8% Germany will still gain; at any figure below 29 the
United States will still gain. There are some further and less
obvious complications from the introduction of cost of transpor-
tation, to which the older economists gave much attention and of
which something will be said as we proceed.” All the complications
from this factor, obvious or obscure, do not affect the essentials of
t Money Credit and Commerce, Book III, Ch. VI and passim.
2 See below, p. 135.
