10 
8 
INTERNATIONAL TRADE 
the analysis, and for the present will be ignored. We shall assume 
that cost of transportation is so small an item that it may be 
neglected. Each commodity is supposed to exchange for the other 
on the same terms in both countries; which would not be the case 
if transportation costs were taken into consideration. 
Each commodity then will be produced in one of the countries 
only. Copper will be produced in the United States only, being 
sent thence to Germany in exchange for linen. Linen will be 
produced in Germany only, being sent thence to the United States 
in exchange for copper. No linen will be produced in the United 
States, no copper in Germany. 
If now we suppose the two regions are not separate countries 
whose inhabitants are kept apart by differences of language, 
custom, race, but are parts of a single homogeneous country — 
say New York and Pennsylvania, not Germany and the United 
States — our conclusions become different. They become differ- 
ent, that is, so far as concerns the possible barter terms of trade. 
The terms will then be settled at the fixed rate of 15 linen for 15 
copper. The inhabitants of both regions will participate equally in 
the potential gains from the trade. But as regards trade between 
countries — to return to this case — under a rate more favorable 
to the United States, say of 15 linen for 8 copper, the total rewards 
of producers in that country, in quantities of linen and copper 
together, will be greater than in Germany. On the other hand, 
under a rate more favorable to Germany, say 15 linen for 29 
copper, the total rewards will be greater in that country. If there 
be free movement of people between the two, such as takes place 
between different regions within a country, there will ensue 
equality of reward. That equality is reached under the rate of 15 
linen for 15 copper. 
The circumstance that gives to international trade its out-~ 
standing characteristics is the lack of free movement between the 
trading countries, and the consequent possibility of great diver- 
gencies between the returns to labor in them. The further sig- - 
nificance of this factor, the causes of divergences between countries, 
the nature and effects of the divergences which still persist within