"Theconverseofallthiswouldhavehappened，if，insteadof800times17yards，wehadsupposedthatEngland，attherateof10for17，wouldhavetaken1200times17yardsoflinen。Inthiscase，itisEnglandwhosedemandisnotfullysupplied;itisEnglandwho，bybiddingformorelinen，willaltertherateofinterchangetoherowndisadvantage;and10yardsofclothwillfall，inbothcountries，belowthevalueof17yardsoflinen。Bythisfallofcloth，orwhatisthesamething，thisriseoflinen，thedemandofGermanyforclothwillincrease，andthedemandofEnglandforlinenwilldiminish，tilltherateofinterchangehassoadjusteditselfthattheclothandthelinenwillexactlypayforoneanother;andwhenoncethispointisattained，valueswillremainwithoutfurtheralteration。"Itmayheconsidered，therefore，asestablished，thatwhentwocountriestradetogetherintwocommodities，theexchangevalueofthesecommoditiesrelativelytoeachotherwilladjustitselftotheinclinationsandcircumstancesoftheconsumersonbothsides，insuchmannerthatthequantitiesrequiredbyeachcountry，ofthearticleswhichitimportsfromitsneighbour，shallbeexactlysufficienttopayforoneanother。Astheinclinationsandcircumstancesofconsumerscannotbereducedtoanyrule，soneithercantheproportionsinwhichthetwocommoditieswillbeinterchanged。Weknowthatthelimitswithinwhichthevariationisconfined，aretheratiobetweentheircostsofproductionintheonecountry，andtheratiobetweentheircostsofproductionintheother。Tenyardsofclothcannotexchangeformorethan20yardsoflinen，norforlessthan15。
Buttheymayexchangeforanyintermediatenumber。Theratios，therefore，inwhichtheadvantageofthetrademaybedividedbetweenthetwonations，arevarious。Thecircumstancesonwhichtheproportionateshareofeachcountrymoreremotelydepends，admitonlyofaverygeneralindication。
"Itisevenpossibletoconceiveanextremecase，inwhichthewholeoftheadvantageresultingfromtheinterchangewouldbereapedbyoneparty，theothercountrygainingnothingatall。
Thereisnoabsurdityinthehypothesisthat，ofsomegivencommodity，acertainquantityisallthatiswantedatanyprice;
andthat，whenthatquantityisobtained，nofallintheexchangevaluewouldinduceotherconsumerstocomeforward，orthosewhoarealreadysupplied，totakemore。LetussupposethatthisisthecaseinGermanywithcloth。BeforehertradewithEnglandcommenced，when10yardsofclothcostherasmuchlabouras20
yardsoflinen，sheneverthelessconsumedasmuchclothasshewantedunderanycircumstances，and，ifshecouldobtainitattherateof10yardsofclothfor15oflinen，shewouldnotconsumemore。Letthisfixedquantitybe1000times10yards。Attherate，however，of10for20，Englandwouldwantmorelinenthanwouldbeequivalenttothisquantityofcloth。Shewouldconsequently，offerahighervalueforlinen;or，whatisthesamething，shewouldofferherclothatacheaperrate。But，asbynoloweringofthevaluecouldsheprevailonGermanytotakeagreaterquantityofcloth，therewouldbenolimittotheriseoflinenorfallofcloth，untilthedemandofEnglandforlinenwasreducedbytheriseofitsvalue，tothequantitywhich1000
times10yardsofclothwouldpurchase。Itmightbe，thattoproducethisdiminutionofthedemandalessfallwouldnotsufficethanthatwhichwouldmake10yardsofclothexchangefor15oflinen。Germanywouldthengainthewholeoftheadvantage，andEnglandwouldbeexactlyasshewasbeforethetradecommenced。Itwouldbefortheinterest，however，ofGermanyherselftokeepherlinenalittlebelowthevalueatwhichitcouldbeproducedinEngland，inordertokeepherselffrombeingsupplantedbythehomeproducer。England，therefore，wouldalwaysbenefitinsomedegreebytheexistenceofthetrade，thoughitmightbeaveryfigone。"
Inthisstatement，Iconceive，iscontainedthefirstelementaryprincipleofInternationalValues。Ihave，asisindispensableinsuchabstractandhypotheticalcases，supposedthecircumstancestobemuchlesscomplexthantheyreallyare:
inthefirstplace，bysuppressingthecostofcarriage;next，bysupposingthatthereareonlytwocountriestradingtogether;andlastly，thattheytradeonlyintwocommodities。Torendertheexpositionoftheprinciplecomplete，itisnecessarytorestorethevariouscircumstancesthustemporarilyleftouttosimplifytheargument。Thosewhoareaccustomedtoanykindofscientificinvestigationwillprobablysee，withoutformalproof，thattheintroductionofthesecircumstancescannotalterthetheoryofthesubject。Tradeamonganynumberofcountries，andinanynumberofcommodities，musttakeplaceonthesameessentialprinciplesastradebetweentwocountriesandintwocommodities。
Introducingagreaternumberofagentspreciselysimilar，cannotchangethelawoftheiraction，nomorethanputtingadditionalweightsintothetwoscalesofabalancealtersthelawofgravitation。Italtersnothingbutthenumericalresults。Formorecompletesatisfaction，however，wewillenterintothecomplexcaseswiththesameparticularitywithwhichwehavestatedthesimplerone。
3。First，letusintroducetheelementofcostofcarriage。
Thechiefdifferencewillthenbe，thattheclothandthelinenwillnolongerexchangeforeachotheratpreciselythesamerateinbothcountries。Linen，havingtobecarriedtoEngland，willbedearertherebyitscostofcarriage;andclothwillbedearerinGermanybythecostofcarryingitfromEngland。Linen，estimatedincloth，willbedearerinEnglandthaninGermany，bythecostofcarriageofbotharticles:andsowillclothinGermany，estimatedinlinen。Supposethatthecostofcarriageofeachisequivalenttooneyardoflinen;andsupposethat，iftheycouldhavebeencarriedwithoutcost，thetermsofinterchangewouldhavebeen10yardsofclothfor17oflinen。Itmayseematfirstthateachcountrywillpayitsowncostofcarriage;thatis，thecarriageofthearticleitSports;thatinGermany10yardsofclothwillexchangefor18oflinen，namely，theoriginal17，and1tocoverthecostofcarriageofthecloth;whileinEngland，10yardsofclothwillonlypurchase16
oflinen，1yardbeingdeductedforthecostofcarriageofthelinen。This，however，cannotbeaffirmedwithcertainty;itwillonlybetrue，ifthelinenwhichtheEnglishconsumerswouldtakeatthepriceof10for16，exactlypaysfortheclothwhichtheGermanconsumerswouldtakeat10for18。Thevalues，whatevertheyare，mustestablishthisequilibrium。Noabsoluterule，therefore，canbelaiddownforthedivisionofthecost，nomorethanforthedivisionoftheadvantage:anditdoesnotfollowthatinwhateverratiotheoneisdivided，theotherwillbedividedinthesame。Itisimpossibletosay，ifthecostofcarriagecouldbeannihilated，whethertheproducingortheimportingcountrywouldbemostbenefited。Thiswoulddependontheplayofinternationaldemand。Costofcarriagehasoneeffectmore。Butforit，everycommoditywould（iftradebesupposedfree）beeitherregularlyimportedorregularlyexported。A
countrywouldmakenothingforitselfwhichitdidnotalsomakeforothercountries。Butinconsequenceofcostofcarriagetherearemanythings，especiallybulkyarticles，whichevery，oralmosteverycountryproduceswithinitself。Afterexportingthethingsinwhichitcanemployitselfmostadvantageously，andimportingthoseinwhichitisunderthegreatestdisadvantage，therearemanylyingbetween，ofwhichtherelativecostofproductioninthatandinothercountriesdifferssolittle，thatthecostofcarriagewouldabsorbmorethanthewholesavingincostofproductionwhichwouldbeobtainedbyimportingoneandexportinganother。Thisisthecasewithnumerouscommoditiesofcommonconsumption;includingthecoarserqualitiesofmanyarticlesoffoodandmanufacture，ofwhichthefinerkindsarethesubjectofextensiveinternationaltraffic。
4。Letusnowintroduceagreaternumberofcommoditiesthanthetwowehavehithertosupposed。Letclothandlinen，however，bestillthearticlesofwhichthecomparativecostofproductioninEnglandandinGermanydiffersthemost;sothatiftheywereconfinedtotwocommodities，thesewouldbethetwowhichitwouldbemosttheirinteresttoexchange。Wewillnowagainomitcostofcarriage，which，havingbeenshownnottoaffecttheessentialsofthequestion，doesbutembarrassunnecessarilythestatementofit。Letussuppose，then，thatthedemandofEnglandforlineniseithersomuchgreaterthanthatofGermanyforcloth，orsomuchmoreextensiblebycheapness，thatifEnglandhadnocommoditybutclothwhichGermanywouldtake，thedemandofEnglandwouldforceupthetermsofinterchangeto10yardsofclothforonly16oflinen，sothatEnglandwouldgainonlythedifferencebetween15and16，Germanythedifferencebetween16
and20。ButletusnowsupposethatEnglandhasalsoanothercommodity，sayiron，whichisindemandinGermany，andthatthequantityofironwhichisofequalvalueinEnglandwith10yardsofcloth，（letuscallthisquantityahundredweight）will，ifproducedinGermany，costasmuchlabouras18yardsoflinen，sothatifofferedbyEnglandfor17，itwillunderselltheGermanproducer。Inthesecircumstances，linenwillnotbeforceduptotherateof16yardsfor10ofcloth，butwillstop，supposeat17;foralthough，atthatrateofinterchange，GermanywillnottakeenoughclothtopayforallthelinenrequiredbyEngland，shewilltakeironforthereminder，anditisthesamethingtoEnglandwhethershegivesahundredweightofironor10yardsofcloth，bothbeingmadeatthesamecost。IfwenowsuperaddcoalsorcottonsonthesideofEngland，andwine，orcorn，ortimber，onthesideofGermany，itwillmakenodifferenceintheprinciple。Theexportsofeachcountrymustexactlypayfortheimports;meaningnowtheaggregateexportsandimports，notthoseofparticularcommoditiestakensingly。Theproduceoffiftydays’Englishlabour，whetherincloth，coals，iron，oranyotherexports，willexchangefortheproduceofforty，orfifty，orsixtydays’Germanlabour，inlinen，wine，corn，ortimber，accordingtotheinternationaldemand。Thereissomeproportionatwhichthedemandofthetwocountriesforeachother’sproductswillexactlycorrespond:sothatthethingssuppliedbyEnglandtoGermanywillbecompletelypaidfor，andnomore，bythosesuppliedbyGermanytoEngland。ThisaccordinglywillbetheratioinwhichtheproduceofEnglishandtheproduceofGermanlabourwillexchangeforoneanother。
If，therefore，itbeaskedwhatcountrydrawstoitselfthegreatestshareoftheadvantageofanytradeitcarrieson，theansweris，thecountryforwhoseproductionsthereisinothercountriesthegreatestdemand，andademandthemostsusceptibleofincreasefromadditionalcheapness。Insofarastheproductionsofanycountrypossessthisproperty，thecountryobtainsallforeigncommoditiesatlesscost。Itgetsitsimportscheaper，thegreatertheintensityofthedemandinforeigncountriesforitsexports。Italsogetsitsimportscheaper，thelesstheextentandintensityofitsowndemandforthem。Themarketischeapesttothosewhosedemandissmall。Acountrywhichdesiresfewforeignproductions，andonlyalimitedquantityofthem，whileitsowncommoditiesareingreatrequestinforeigncountries，willobtainitslimitedimportsatextremelysmallcost，thatis，inexchangefortheproduceofaverysmallquantityofitslabourandcapital。
Lastly，havingintroducedmorethantheoriginaltwocommoditiesintothehypothesis，letusalsointroducemorethantheoriginaltwocountries。AfterthedemandofEnglandforthelinenofGermanyhasraisedtherateofinterchangeto10yardsofclothfor16oflinen，supposeatradeopenedbetweenEnglandandsomeothercountrywhichalsoexportslinen。AndletussupposethatifEnglandhadnotradebutwiththisthirdcountry，theplayofinternationaldemandwouldenablehertoobtainfromit，for10yardsofclothoritsequivalent，17yardsoflinen。
SheevidentlywouldnotgoonbuyinglinenfromGermanyattheformerrate:Germanywouldbeundersold，andmustconsenttogive17yards，liketheothercountry。Inthiscase，thecircumstancesofproductionandofdemandinthethirdcountryaresupposedtobeinthemselvesmoreadvantageoustoEnglandthanthecircumstancesofGermany;butthissuppositionisnotnecessary:
wemightsupposethatifthetradewithGermanydidnotexist，EnglandwouldbeobligedtogivetotheothercountrythesameadvantageoustermswhichshegivestoGermany;10yardsofclothfor16，orevenlessthan16，oflinen。Evenso，theopeningofthethirdcountrymakesagreatdifferenceinfavourofEngland。
ThereisnowadoublemarketforEnglishexports，whilethedemandofEnglandforlinenisonlywhatitwasbefore。ThisnecessarilyobtainsforEnglandmoreadvantageoustermsofinterchange。Thetwocountries，requiringmuchmoreofherproducethanwasrequiredbyeitheralone，must，inordertoobtainit，forceanincreaseddemandfortheirexports，byofferingthematalowervalue。
Itdeservesnotice，thatthiseffectinfavourofEnglandfromtheopeningofanothermarketforherexports，willequallybeproducedeventhoughthecountryfromwhichthedemandcomesshouldhavenothingtosellwhichEnglandiswillingtotake。
Supposethatthethirdcountry，thoughrequiringclothorironfromEngland，producesnolinen，noranyotherarticlewhichisindemandthere。Shehoweverproducesexportablearticles，orshewouldhavenomeansofpayingforimports:herexports，thoughnotsuitabletotheEnglishconsumer，canfindamarketsomewhere。Asweareonlysupposingthreecountries，wemustassumehertofindthismarketinGermany，andtopayforwhatsheimportsfromEnglandbyordersonherGermancustomers。
Germany，therefore，besideshavingtopayforherownimports，nowowesadebttoEnglandonaccountofthethirdcountry，andthemeansforbothpurposesmustbederivedfromherexportableproduce。ShemustthereforetenderthatproducetoEnglandontermssufficientlyfavourabletoforceademandequivalenttothisdoubledebt。EverythingwilltakeplacepreciselyasifthethirdcountryhadboughtGermanproducewithherowngoods，andofferedthatproducetoEnglandinexchangeforhers。ThereisanincreaseddemandforEnglishgoods，forwhichGermangoodshavetofurnishthepayment;andthiscanonlybedonebyforcinganincreaseddemandfortheminEngland，thatis，byloweringtheirvalue。Thusanincreaseofdemandforacountry’sexportsinanyforeigncountry，enableshertoobtainmorecheaplyeventhoseimportswhichsheprocuresfromotherquarters。Andconversely，anincreaseofherowndemandforanyforeigncommoditycompelsher，caeterisparibus，topaydearerforallforeigncommodities。
Thelawwhichwehavenowillustrated，maybeappropriatelynamed，theEquationofInternationalDemand。Itmaybeconciselystatedasfollows。Theproduceofacountryexchangesfortheproduceofothercountries，atsuchvaluesasarerequiredinorderthatthewholeofherexportsmayexactlypayforthewholeofherimports。ThislawofInternationalValuesisbutanextensionofthemoregenerallawofValue，whichwecalledtheEquationofSupplyandDemand。（1*）Wehaveseenthatthevalueofacommodityalwayssoadjustsitselfastobringthedemandtotheexactlevelofthesupply。Butalltrade，eitherbetweennationsorindividuals，isaninterchangeofcommodities，inwhichthethingsthattheyrespectivelyhavetosell，constitutealsotheirmeansofpurchase:thesupplybroughtbytheoneconstituteshisdemandforwhatisbroughtbytheother。Sothatsupplyanddemandarebutanotherexpressionforreciprocaldemand:andtosaythatvaluewilladjustitselfsoastoequalizedemandwithsupply，isinfacttosaythatitwilladjustitselfsoastoequalizethedemandononesidewiththedemandontheother。
5。TotracetheconsequencesofthislawofInternationalValuesthroughtheirwideramifications，wouldoccupymorespacethancanbeheredevotedtosuchapurpose。ButthereisoneofitsapplicationswhichIwillnotice，asbeinginitselfnotunimportant，asbearingonthequestionwhichwilloccupyusinthenextchapter，andespeciallyasconducingtothemorefullandclearunderstandingofthelawitself。
Wehaveseenthatthevalueatwhichacountrypurchasesaforeigncommodity，doesnotconformtothecostofproductioninthecountryfromwhichthecommoditycomes。Supposenowachangeinthatcostofproduction;animprovement，forexample，intheprocessofmanufacture。Willthebenefitoftheimprovementbefullyparticipatedinbyothercountries？Willthecommoditybesoldasmuchcheapertoforeigners，asitisproducedcheaperathome？Thisquestion，andtheconsiderationswhichmustbeenteredintoinordertoresolveit，arewelladaptedtotrytheworthofthetheory。
Letusfirstsuppose，thattheimprovementisofanaturetocreateanewbranchofexport:tomakeforeignersresorttothecountryforacommoditywhichtheyhadpreviouslyproducedathome。Onthissupposition，theforeigndemandfortheproductionsofthecountryisincreased;whichnecessarilyalterstheinternationalvaluestoitsadvantage，andtothedisadvantageofforeigncountries，who，therefore，thoughtheyparticipateinthebenefitofthenewproduct，mustpurchasethatbenefitbypayingforalltheotherproductionsofthecountryatadearerratethanbefore。Howmuchdearer，willdependonthedegreenecessaryforre—establishing，underthesenewconditions，theEquationofInternationalDemand。Theseconsequencesfollowinaveryobviousmannerfromthelawofinternationalvalues，andIshallnotoccupyspaceinillustratingthem，butshallpasstothemorefrequentcase，ofanimprovementwhichdoesnotcreateanewarticleofexport，butlowersthecostofproductionofsomethingwhichthecountryalreadyexported。
Itbeingadvantageous，indiscussionsofthiscomplicatednature，toemploydefinitenumericalamounts，weshallreturntoouroriginalexample。Tenyardsofcloth，ifproducedinGermany，wouldrequirethesameamountoflabourandcapitalastwentyyardsoflinen;butbytheplayofinternationaldemand，theycanbeobtainedfromEnglandforseventeen。Supposenow，thatbyamechanicalimprovementmadeinGermany，andnotcapableofbeingtransferredtoEngland，thesamequantityoflabourandcapitalwhichproducedtwentyyardsoflinen，isenabledtoproducethirty。Linenfallsone—thirdinvalueintheGermanmarket，ascomparedwithothercommoditiesproducedinGermany。Willitalsofallone—thirdascomparedwithEnglishcloth，thusgivingtoEngland，incommonwithGermany，thefullbenefitoftheimprovement？Or（oughtwenotrathertosay），sincethecosttoEnglandofobtaininglinenwasnotregulatedbythecosttoGermanyofproducingit，andsinceEngland，accordingly，didnotgettheentirebenefitevenofthetwentyyardswhichGermanycouldhavegivenfortenyardsofcloth，butonlyobtainedseventeen——whyshouldshenowobtainmore，merelybecausethistheoreticallimitisremovedtendegreesfurtheroff？
Itisevidentthatintheoutset，theimprovementwilllowerthevalueoflineninGermany，inrelationtoallothercommoditiesintheGermanmarket，including，amongtherest，eventheimportedcommodity，cloth。If10yardsofclothpreviouslyexchangedfor17yardsoflinen，theywillnowexchangeforhalfasmuchmore，or251/2yards。Butwhethertheywillcontinuetodoso，willdependontheeffectwhichthisincreasedcheapnessoflinenproducesontheinternationaldemand。ThedemandforlineninEnglandcouldscarcelyfailtobeincreased。Butitmightbeincreasedeitherinproportiontothecheapness，orinagreaterproportionthanthecheapness，orinalessproportion。
Ifthedemandwasincreasedinthesameproportionwiththecheapness，Englandwouldtakeasmanytimes251/2yardsoflinen，asthenumberoftimes17yardswhichshetookpreviously。
Shewouldexpendinlinenexactlyasmuchofcloth，oroftheequivalentsofcloth，asmuchinshortofthecollectiveincomeofherpeople，asshedidbefore。Germanyonherpart，wouldprobablyrequire，atthatrateofinterchange，thesamequantityofclothasbefore，becauseitwouldinrealitycostherexactlyasmuch;251/2yardsoflinenbeingnowofthesamevalueinhermarket，as17yardswerebefore。Inthiscase，therefore，10
yardsofclothfor251/2oflinenistherateofinterchangewhichunderthesenewconditionswouldrestoretheequationofinternationaldemand;andEnglandwouldobtainlinenone—thirdcheaperthanbefore，beingthesameadvantageaswasobtainedbyGermany。
Itmighthappen，however，thatthisgreatcheapeningoflinenwouldincreasethedemandforitinEnglandinagreaterratiothantheincreaseofcheapness;andthatifshebeforewanted1000times17yards，shewouldnowrequiremorethan1000times251/2yardstosatisfyherdemand。Ifso，theequationofinternationaldemandcannotestablishitselfatthatrateofinterchange;topayforthelinenEnglandmustofferclothonmoreadvantageousterms;say，forexample，10yardsfor21oflinen;sothatEnglandwillnothavethefullbenefitoftheimprovementintheproductionoflinen，whileGermany，inadditiontothatbenefit，willalsopaylessforcloth。Butagain，itispossiblethatEnglandmightnotdesiretoincreaseherconsumptionoflineninevensogreataproportionasthatoftheincreasedcheapness;shemightnotdesiresogreataquantityas1000times251/2yards:andinthatcaseGermanymustforceademand，byofferingmorethan251/2yardsoflinenfor10ofcloth:linenwillbecheapenedinEnglandinastillgreaterdegreethaninGermany;whileGermanywillobtainclothonmoreunfavourableterms;andatahigherexchangevaluethanbefore。
Afterwhathasalreadybeensaid，itisnotnecessarytoparticularizethemannerinwhichtheseresultsmightbemodifiedbyintroducingintothehypothesisothercountriesandothercommodities。Thereisafurthercircumstancebywhichtheymayalsobemodified。InthecasesupposedtheconsumersofGermanyhavehadapartoftheirincomessetatlibertybytheincreasedcheapnessoflinen，whichtheymayindeedexpendinincreasingtheirconsumptionofthatarticle，butwhichtheymaylikewiseexpendinotherarticles，andamongothers，inclothorotherimportedcommodities。Thiswouldbeanadditionalelementintheinternationaldemand，andwouldmodifymoreorlessthetermsofinterchange。
Ofthethreepossiblevarietiesintheinfluenceofcheapnessondemand，whichisthemoreprobable——thatthedemandwouldbeincreasedmorethanthecheapness，asmuchasthecheapness，orlessthanthecheapness？Thisdependsonthenatureoftheparticularcommodity，andonthetastesofpurchasers。Whenthecommodityisoneingeneralrequest，andthefallofitpricebringsitwithinreachofamuchlargerclassofincomesthanbefore，thedemandisoftenincreasedinagreaterratiothanthefallofprice，andalargersumofmoneyisonthewholeexpendedinthearticle。Suchwasthecasewithcoffee，whenitspricewasloweredbysuccessivereductionsoftaxation;andsuchwouldprobablybethecasewithsugar，wine，andalargeclassofcommoditieswhich，thoughnotnecessaries，arelargelyconsumed，andinwhichmanyconsumersindulgewhenthearticlesarecheapandeconomizewhentheyaredear。Butitmorefrequentlyhappensthatwhenacommodityfallsinprice，lessmoneyisspentinitthanbefore:agreaterquantityisconsumed，butnotsogreatavalue。Theconsumerwhosavesmoneybythecheapnessofthearticle，willbelikelytoexpendpartofthesavinginincreasinghisconsumptionofotherthings:andunlessthelowpriceattractalargeclassofnewpurchaserswhowereeithernotconsumersofthearticleatall，oronlyinsmallquantityandoccasionally，alessaggregatesumwillbeexpendedonit。
Speakinggenerally，therefore，thethirdofourthreecasesisthemostprobable:andanimprovementinanexportablearticleislikelytobeasbeneficial（ifnotmorebeneficial）toforeigncountries，astothecountrywherethearticleisproduced。
6。Thusfarhadthetheoryofinternationalvaluesbeencarriedinthefirstandsecondeditionsofthiswork。Butintelligentcriticisms（chieflythoseofmyfriendMrWilliamThornton），andsubsequentfurtherinvestigation，haveshownthatthedoctrinestatedintheprecedingpages，thoughcorrectasfarasitgoes，isnotyetthecompletetheoryofthesubjectmatter。
Ithasbeenshownthattheexportsandimportsbetweenthetwocountries（or，ifwesupposemorethantwo，betweeneachcountryandtheworld）mustintheaggregatepayforeachother，andmustthereforebeexchangedforoneanotheratsuchvaluesaswillbecompatiblewiththeequationofinternationaldemand。
Thatthis，however，doesnotfurnishthecompletelawofthephenomenon，appearsfromthefollowingconsideration:thatseveraldifferentratesofinternationalvaluemayallequallyfulfiltheconditionsofthislaw。
Thesuppositionwas，thatEnglandcouldproduce10yardsofclothwiththesamelabouras15oflinen，andGermanywiththesamelabouras20oflinen;thatatradewasopenedbetweenthetwocountries;thatEnglandthenceforthconfinedherproductiontocloth，andGermanytolinen;and，thatif10yardsofclothshouldthenceforthexchangefor17oflinen，EnglandandGermanywouldexactlysupplyeachother’sdemand:that，forinstance，ifEnglandwantedatthatprice17，000yardsoflinen，Germanywouldwantexactlythe10，000yardsofcloth，which，atthatprice，Englandwouldberequiredtogiveforthelinen。Underthesesuppositionsitappeared，that10clothfor17linen，wouldbe，inpointoffact，theinternationalvalues。
Butitisquitepossiblethatsomeotherrate，suchas10
clothfor18linen，mightalsofulfiltheconditionsoftheequationofinternationaldemand。Supposethatatthislastrate，Englandwouldwantmorelinenthanattherateof10for17，butnotintheratioofthecheapness;thatshewouldnotwantthe18，000whichshecouldnowbuywith10，000yardsofcloth，butwouldbecontentwith17，500，forwhichshewouldpay（atthenewrateof10for18）9722yardsofcloth。Germany，again，havingtopaydearerforcloththanwhenitcouldbeboughtat10for17，wouldprobablyreduceherconsumptiontoanamountbelow10，000
yards，perhapstotheverysamenumber，9722。UndertheseconditionstheEquationofInternationalDemandwouldstillexist。Thus，therateof10for17，andthatof10for18，wouldequallysatisfytheEquationofDemand:andmanyotherratesofinterchangemightsatisfyitinlikemanner。Itisconceivablethattheconditionsmightbeequallysatisfiedbyeverynumericalratewhichcouldbesupposed。Thereisstillthereforeaportionofindeterminatenessintherateatwhichtheinternationalvalueswouldadjustthemselves;showingthatthewholeoftheinfluencingcircumstancescannotyethavebeentakenintoaccount。
7。Itwillbefoundthattosupplythisdeficiency，wemusttakeintoconsiderationnotonly，aswehavealreadydone，thequantitiesdemandedineachcountry，oftheimportedcommodities;
butalsotheextentofthemeansofsupplyingthatdemand，whicharesetatlibertyineachcountrybythechangeinthedirectionofitsindustry。
Toillustratethispointitwillbenecessarytochoosemoreconvenientnumbersthanthosewhichwehavehithertoemployed。
LetitbesupposedthatinEngland100yardsofcloth，previouslytothetrade，exchangedfor100oflinen，butthatinGermany100
ofclothexchangedfor200oflinen。Whenthetradewasopened，EnglandwouldsupplyclothtoGermany，GermanylinentoEngland，atanexchangevaluewhichwoulddependpartlyontheelementalreadydiscussed，viz。thecomparativedegreeinwhich，inthetwocountries，increasedcheapnessoperatesinincreasingthedemand;andpartlyonsomeotherelementnotyettakenintoaccount。Inordertoisolatethisunknownelement，itwillbenecessarytomakesomedefiniteandinvariablesuppositioninregardtotheknownelement。Letusthereforeassume，thattheinfluenceofcheapnessondemandconformstosomesimplelaw，commontobothcountriesandtobothcommodities。Asthesimplestandmostconvenient，letussupposethatinbothcountriesanygivenincreaseofcheapnessproducesanexactlyproportionalincreaseofconsumption:or，inotherwords，thatthevalueexpendedinthecommodity，thecostincurredforthesakeofobtainingit，isalwaysthesame，whetherthatcostaffordsagreaterorasmallerquantityofthecommodity。
LetusnowsupposethatEngland，previouslytothetrade，requiredamillionofyardsoflinen，whichwereworthattheEnglishcostofproduction，amillionyardsofcloth。Byturningallthelabourandcapitalwithwhichthatlinenwasproduced，totheproductionofcloth，shewouldproduceforexportationamillionyardsofcloth。SupposethatthisistheexactquantitywhichGermanyisaccustomedtoconsume。EnglandcandisposeofallthisclothinGermanyattheGermanprice;shemustconsentindeedtotakealittlelessuntilshehasdriventheGermanproducerfromthemarket，butassoonasthisiseffected，shecansellhermillionofclothfortwomillionsoflinen;beingthequantitythattheGermanclothiersareenabledtomake，bytransferringtheirwholelabourandcapitalfromclothtolinen。
ThusEnglandwouldgainthewholebenefitofthetrade，andGermanynothing。Thiswouldbeperfectlyconsistentwiththeequationofinternationaldemand:sinceEngland（accordingtothehypothesisintheprecedingparagraph）nowrequirestwomillionsoflinen（beingabletogetthematthesamecostatwhichshepreviouslyobtainedonlyone），whilethepricesinGermanynotbeingaltered，Germanyrequiresasbeforeexactlyamillionofcloth，andcanobtainitbyemployingthelabourandcapitalsetatlibertyfromtheproductionofcloth，inproducingthetwomillionsoflinenrequiredbyEngland。
ThusfarwehavesupposedthattheadditionalclothwhichEnglandcouldmake，bytransferringtocloththewholeofthecapitalpreviouslyemployedinmakinglinen，wasexactlysufficienttosupplythewholeofGermany’sexistingdemand。Butsupposenextthatitismorethansufficient。SupposethatwhileEnglandcouldmakewithherliberatedcapitalamillionyardsofclothforexportation，theclothwhichGermanyhadheretoforerequiredwas800，000yardsonly，equivalentattheGermancostofproductionto1，600，000yardsoflinen。EnglandthereforecouldnotdisposeofawholemillionofclothinGermanyattheGermanprices。Yetshewants，whethercheapordear（byoursupposition），asmuchlinenascanbeboughtforamillionofcloth:andsincethiscanonlybeobtainedfromGermany，orbythemoreexpensiveprocessofproductionathome，theholdersofthemillionofclothwillbeforcedbyeachother’scompetitiontoofferittoGermanyonanyterms（shortoftheEnglishcostofproduction）whichwillinduceGermanytotakethewhole。Whattermsthesewouldbe，thesuppositionwehavemadeenablesusexactlytodefine。The800，000yardsofclothwhichGermanyconsumed，costhertheequivalentof1，600，000linen，andthatinvariablecostiswhatsheiswillingtoexpendincloth，whetherthequantityitobtainsforherbemoreorless。Englandtherefore，toinduceGermanytotakeamillionofcloth，mustofferitfor1，600，000oflinen。Theinternationalvalueswillthusbe100clothfor160linen，intermediatebetweentheratioofthecostsofproductioninEnglandandthatofthecostsofproductioninGermany:andthetwocountrieswilldividethebenefitofthetrade，Englandgainingintheaggregate600，000
yardsoflinen，andGermanybeingricherby200，000additionalyardsofcloth。
Letusnowstretchthelastsuppositionstillfarther，andsupposethattheclothpreviouslyconsumedbyGermanywasnotonlylessthanthemillionyardswhichEnglandisenabledtofurnishbydiscontinuingherproductionoflinen，butlessinthefullproportionofEngland’sadvantageintheproduction，thatis，thatGermanyonlyrequiredhalfamillion。Inthiscase，byceasingaltogethertoproducecloth，Germanycanaddamillion，butamilliononly，toherproductionoflinen，andthismillion，beingtheequivalentofwhatthehalfmillionpreviouslycosther，isallthatshecanbeinducedbyanydegreeofcheapnesstoexpendincloth。Englandwillbeforcedbyherowncompetitiontogiveawholemillionofclothforthismillionoflinen，justasshewasforcedintheprecedingcasetogiveitfor1，600，000。
ButEnglandcouldhaveproducedatthesamecostamillionyardsoflinenforherself。Englandthereforederives，inthiscase，noadvantagefromtheinternationaltrade。Germanygainsthewhole;
obtainingamillionofclothinsteadofhalfamillion，atwhatthehalfmillionpreviouslycosther。Germany，inshort，isinthisthirdcase，exactlyinthesamesituationasEnglandwasinthefirstcase;whichmayeasilybeverifiedbyreversingthefigures。
Asthegeneralresultofthethreecases，itmaybelaiddownasatheorem，thatunderthesuppositionwehavemadeofademandexactlyinproportiontothecheapness，thelawofinternationalvaluewillbeasfollows:——
ThewholeoftheclothwhichEnglandcanmakewiththecapitalpreviouslydevotedtolinen，willexchangeforthewholeofthelinenwhichGermanycanmakewiththecapitalpreviouslydevotedtocloth。
Or，stillmoregenerally，Thewholeofthecommoditieswhichthetwocountriescanrespectivelymakeforexportation，withthelabourandcapitalthrownoutofemploymentbyimportation，willexchangeagainstoneanother。
Thislaw，andthethreedifferentpossibilitiesarisingfromitinrespecttothedivisionoftheadvantage，maybeconvenientlygeneralizedbymeansofalgebraicalsymbols，asfollows:LetthequantityofclothwhichEnglandcanmakewiththelabourandcapitalwithdrawnfromtheproductionoflinen，be=
n。
LettheclothpreviouslyrequiredbyGermany（attheGermancostofproduction）be=m。
Thennofclothwillalwaysexchangeforexactly2moflinen。
Consequentlyifn=m，thewholeadvantagewillbeonthesideofEngland。
Ifn=2m，thewholeadvantagewillbeonthesideofGermany。
Ifnbegreaterthanm，butlessthan2m，thetwocountrieswillsharetheadvantage;Englandgetting2moflinenwhereshebeforegotonlyn;Germanygettingnofclothwhereshebeforegotonlym。Itisalmostsuperfluoustoobservethatthefigure2
standswhereitdoes，onlybecauseitisthefigurewhichexpressestheadvantageofGermanyoverEnglandinlinenasestimatedincloth，and（whatisthesamething）ofEnglandoverGermanyinclothasestimatedinlinen。IfwehadsupposedthatinGermany，beforethetrade，100ofclothexchangedfor1000
insteadof200oflinen，thenn（afterthetradecommenced）wouldhaveexchangedfor10minsteadof2m。Ifinsteadof1000or200
wehadsupposedonly150，nwouldhaveexchangedforonly3/2m。
If（infine）thecostvalueofcloth（asestimatedinlinen）inGermany，exceedsthecostvaluesimilarlyestimatedinEngland，intheratioofptoq，thenwilln，aftertheopeningofthetrade，exchangeforp/qm。（2*）
8。WehavenowarrivedatwhatseemsalawofInternationalValues，ofgreatsimplicityandgenerality。Butwehavedonesobysettingoutfromapurelyarbitraryhypothesisrespectingtherelationbetweendemandandcheapness。Wehaveassumedtheirrelationtobefixed，thoughitisessentiallyvariable。Wehavesupposedthateveryincreaseofcheapnessproducesanexactlyproportionalextensionofdemand;inotherwords，thatthesameinvariablevalueislaidoutinacommoditywhetheritbecheapordear;andthelawwhichwehaveinvestigatedholdsgoodonlyonthishypothesis，orsomeotherpracticallyequivalenttoit。
Letusnow，therefore，combinethetwovariableelementsofthequestion，thevariationsofeachofwhichwehaveconsideredseparately。Letussupposetherelationbetweendemandandcheapnesstovary，andtobecomesuchaswouldpreventtheruleofinterchangelaiddowninthelasttheoremfromsatisfyingtheconditionsoftheEquationofInternationalDemand。Letitbesupposed，forinstance，thatthedemandofEnglandforlinenisexactlyproportionaltothecheapness，butthatofGermanyforcloth，notproportional。Toreverttothesecondofourthreecases，thecaseinwhichEnglandbydiscontinuingtheproductionoflinencouldproduceforexportationamillionyardsofcloth，andGermanybyceasingtoproduceclothcouldproduceanadditional1，600，000yardsoflinen。Iftheoneofthesequantitiesexactlyexchangedfortheother，thedemandofEnglandwouldonourpresentsuppositionbeexactlysatisfied，forsherequiresallthelinenwhichcanbegotforamillionyardsofcloth:butGermanyperhaps，thoughsherequired800，000clothatacostequivalentto1，600，000linen，yetwhenshecangetamillionofclothatthesamecost，maynotrequirethewholemillion;ormayrequiremorethanamillion。First，lethernotrequiresomuch;butonlyasmuchasshecannowbuyfor1，500，000linen。Englandwillstillofferamillionforthese1，500，000;buteventhismaynotinduceGermanytotakesomuchasamillion;andifEnglandcontinuestoexpendexactlythesameaggregatecostonlinenwhateverbetheprice，shewillhavetosubmittotakeforhermillionofclothanyquantityoflinen（notlessthanamillion）whichmayberequisitetoinduceGermanytotakeamillionofcloth。Supposethistobe1，400，000
yards。Englandhasnowreapedfromthetradeagainnotof600，000butonlyof400，000yards;whileGermany，besideshavingobtainedanextra200，000yardsofcloth，hasobtaineditwithonlyseven—eighthsofthelabourandcapitalwhichshepreviouslyexpendedinsupplyingherselfwithcloth，andmayexpendtheremainderinincreasingherownconsumptionoflinen，orofanyothercommodity。
SupposeonthecontrarythatGermany，attherateofamillionclothfor1，600，000linen，requiresmorethanamillionyardsofcloth。Englandhavingonlyamillionwhichshecangivewithouttrenchinguponthequantityshepreviouslyreservedforherself，Germanymustbidfortheextraclothatahigherratethan160for100，untilshereachesarate（say170for100）
whichwilleitherbringdownherowndemandforclothtothelimitofamillion，orelsetemptEnglandtopartwithsomeoftheclothshepreviouslyconsumedathome。
Letusnextsupposethattheproportionalityofdemandtocheapness，insteadofholdinggoodinonecountrybutnotintheother，doesnotholdgoodineithercountry，andthatthedeviationisofthesamekindinboth;that，forinstance，neitherofthetwoincreasesitsdemandinadegreeequivalenttotheincreaseofcheapness。Onthissupposition，attherateofonemillionclothfor1，600，000linen，Englandwillnotwantsomuchas1，600，000linen，norGermanysomuchasamillioncloth:
andiftheyfallshortofthatamountinexactlythesamedegree:
ifEnglandonlywantslinentotheamountofnine—tenthsof1，600，000（1，440，000），andGermanyonlyninehundredthousandofcloth，theinterchangewillcontinuetotakeplaceatthesamerate。AndsoifEnglandwantsatenthmorethan1，600，000，andGermanyatenthmorethanamillion。Thiscoincidence（which，itistobeobserved，supposesdemandtoextendcheapnessinacorresponding，butnotinanequaldegree（3*））evidentlycouldnotexistunlessbymereaccident:andinanyothercase，theequationofinternationaldemandwouldrequireadifferentadjustmentofinternationalvalues。
Theonlygenerallaw，then，whichcanbelaiddown，isthis。
Thevaluesatwhichacountryexchangesitsproducewithforeigncountriesdependontwothings:first，ontheamountandextensibilityoftheirdemandforitscommodities，compiledwithitsdemandfortheirs;andsecondly，onthecapitalwhichithastospare，fromtheproductionofdomesticcommoditiesforitsownconsumption。Themoretheforeigndemandforitscommoditiesexceedsitsdemandforforeigncommodities，andthelesscapitalitcanspiletoproduceforforeignmarkets，compiledwithwhatforeignersspiletoproduceforitsmarkets，themorefavourabletoitwillbethetermsofinterchange:thatis，themoreitwillobtainofforeigncommoditiesinreturnforagivenquantityofitsown。
Butthesetwoinfluencingcircumstancesareinrealityreducibletoone:forthecapitalwhichacountryhastospilefromtheproductionofdomesticcommoditiesforitsownuse，isinproportiontoitsowndemandforforeigncommodities:whateverproportionofitscollectiveincomeitexpendsinpurchasesfromabroad，thatsameproportionofitscapitalisleftwithoutahomemarketforitsproductions。Thenewelement，therefore，whichforthesakeofscientificcorrectnesswehaveintroducedintothetheoryofinternationalvalues，doesnotseemtomakeanyverymaterialdifferenceinthepracticalresult。Itstillappearsthatthecountrieswhichcarryontheirforeigntradeonthemostadvantageousterms，arethosewhosecommoditiesaremostindemandbyforeigncountries，andwhichhavethemselvestheleastdemandforforeigncommodities。Fromwhich，amongotherconsequences，itfollows，thattherichestcountries，caeterisparibus，gaintheleastbyagivenamountofforeigncommerce:
since，havingagreaterdemandforcommoditiesgenerally，theyarelikelytohaveagreaterdemandforforeigncommodities，andthusmodifythetermsofinterchangetotheirowndisadvantage。
Theiraggregategainsbyforeigntrade，doubtless，aregenerallygreaterthanthoseofpoorercountries，sincetheycarryonagreateramountofsuchtrade，andgainthebenefitofcheapnessonalargerconsumption:buttheirgainislessoneachindividualarticleconsumed。
9。Wenowpasstoanotheressentialpartofthetheoryofthesubject。Therearetwosensesinwhichacountryobtainscommoditiescheaperbyforeigntrade;inthesenseofValue，andinthesenseofCost。Itgetsthemcheaperinthefirstsense，bytheirfallinginvaluerelativelytootherthings:thesamequantityofthemexchanging，inthecountry，forasmallerquantitythanbeforeoftheotherproduceofthecountry。Toreverttoouroriginalfigures;inEngland，allconsumersoflinenobtained，afterthetradewasopened，17orsomegreaternumberofyardsforthesamequantityofallotherthingsforwhichtheybeforeobtainedonly15。Thedegreeofcheapness，inthissenseoftheterm，dependsontheclawsofInternationalDemand，socopiouslyillustratedintheprecedingsections。Butintheothersense，thatofCost，acountrygetsacommoditycheaperwhenitobtainsagreaterquantityofthecommoditywiththesameexpenditureoflabourandcapital。Inthissenseoftheterm，cheapnessinagreatmeasuredependsuponacauseofadifferentnature:acountrygetsitsimportscheaper，inproportiontothegeneralproductivenessofitsdomesticindustry;tothegeneralefficiencyofitslabour。Thelabourofonecountrymaybe，asawhole，muchmoreefficientthanthatofanother:allormostofthecommoditiescapableofbeingproducedinboth，maybeproducedinoneatlessabsolutecostthanintheother;which，aswehaveseen，willnotnecessitypreventthetwocountriesfromexchangingcommodities。Thethingswhichthemorefavouredcountrywillimportfromothers，areofcoursethoseinwhichitisleastsuperior;butbyimportingthemitacquires，eveninthosecommodities，thesameadvantagewhichitpossessesinthearticlesitgivesinexchangeforthem。Thusthecountrieswhichobtaintheirownproductionsatleastcost，alsogettheirimportsatleastcost。
Thiswillbemadestillmoreobviousifwesupposetwocompetingcountries。EnglandsendsclothtoGermany，andgives10
yardsofitfor17yardsoflinen，orforsomethingelsewhichinGermanyistheequivalentofthose17yards。Anothercountry，asforexampleFrance，doesthesame。Theonegiving10yardsofclothforacertainquantityofGermancommodities，somusttheother:if，therefore，inEngland，these10yardsareproducedbyonlyhalfasmuchlabourasthatbywhichtheyareproducedinFrance，thelinenorothercommoditiesofGermanywillcosttoEnglandonlyhalftheamountoflabourwhichtheywillcosttoFrance。EnglandwouldthusobtainherimportsatlesscostthanFrance，intheratioofthegreaterefficiencyofherlabourintheproductionofcloth:whichmightbetaken，inthecasesupposed，asanapproximateestimateoftheefficiencyofherlabourgenerally;sinceFrance，aswellasEngland，byselectingclothasherarticleofexport，wouldhaveshownthatwithheralsoitwasthecommodityinwhichlabourwasrelativelythemostefficient。Itfollows，therefore，thateverycountrygetsitsimportsatlesscost，inproportiontothegeneralefficiencyofitslabour。
ThispropositionwasfirstclearlyseenandexpoundedbyMr。
Senior，（4*）butonlyasapplicabletotheimportationofthepreciousmetals。Ithinkitimportanttopointoutthatthepropositionholdsequallytrueofallotherimportedcommodities;
andfurther，thatitisonlyaportionofthetruth。For，inthecasesupposed，thecosttoEnglandofthelinenwhichshepaysforwithtenyardsofcloth，doesnotdependsolelyuponthecosttoherselfoftenyardsofcloth，butpartlyalsouponhowmanyyardsoflinensheobtainsinexchangeforthem。Whatherimportscosttoherisafunctionoftwovariables;thequantityofherowncommoditieswhichshegivesforthem，andthecostofthosecommodities。Ofthese，thelastalonedependsontheefficiencyofherlabour:thefirstdependsonthelawofinternationalvalues;thatis，ontheintensityandextensibilityoftheforeigndemandforhercommodities，comparedwithherdemandforforeigncommodities。