356 INTERNATIONAL TRADE 
whelmingly the largest movement between countries is that of 
merchandise, while that of specie is small. But under paper, 
it is not merely a matter of preponderance in the merchandise 
movement. Nothing at all moves except merchandise. No 
money flows from country to country. And yet, tho what takes 
place is the mere exchange of commodities for commodities, tho 
this essential characteristic of all trade and all exchange seems 
to be conspicuously in evidence, each individual transaction 
remains a sale for money. No individual trader is aware that 
barter is taking place. As under specie conditions, so under dis- 
located exchanges, the entire series of transactions between the 
countries 1s wound up without any understanding of the situa- 
tion on the part of the individuals who consummate them, unless 
it be in the excessively rare case of a merchant or banker who has 
a grasp of the intricacies of theory. All works itself out thru the 
buying and selling of foreign exchange, the exchange quotations, 
the slow and unperceived shifts in the flow of goods from country 
to country, the gradual alterations in prices, the painful readjust- 
ment of the productive forces. The whole process operates thru 
the foreign exchange rate. But that exchange rate itself depends 
on the same factors on which the barter terms of trade also depend : 
on the extent to which a country values foreign goods, and chooses 
to consume these rather than the things which it can directly 
produce within its own borders. 
Some obvious qualifications on the scope and nature of these 
general conclusions should be borne in mind. There are of course 
limits and bounds within which both the barter terms of trade and 
the foreign exchange rate are confined. Those limits are reached 
when the barter terms become so unfavorable to one of the coun- 
tries that it can produce at home as advantageously as it is able 
to import. The wider the disparity between productive forces — 
the greater the absolute or comparative advantage possessed by a 
country — the wider the range within which the barter terms and 
the foreign exchange can fluctuate. So it is under specie condi- 
tions. The wider the disparities of advantages in production, 
the greater the possible differences of money incomes from country