SOME DOCTRINES OF POLITICAL ECONOMY. 137 



31. But it must be recollected that these suppositions, of a population which, during its 

 increase in numbers, increases in the same proportion in money demand for corn, while the 

 increased production of corn is not accompanied by any improvement of cultivation occasioning 

 a diminution of cost, is an arbitrary hypothesis, made in order to apply the formulas, and not 

 likely to be realized in fact. 



32. And on the other hand, if the quantity of produce of this class has been increased 

 while the price has not been increased, or has been diminished, that circumstance shews that 

 in the country and during the period in question, the commodity has not been one of increasing 

 cost of production. In this case improvements in cultivation must have balanced or more 

 than balanced the increased difficulties which, without them, would have made the cost of 

 every added portion of produce greater than the preceding. To this case our equation does 

 not apply. 



33. The preceding formulas apply to prices as affected by demand and production within 

 the limits of our country. Prices within such a circle are governed ultimately by the cost of 

 production. The prices of a unit of each of two commodities C and D, are as the cost of 

 production of the two ; that is, as the labour (including skill estimated in labour) by which 

 each is produced and brought to market. For if the ratio of the prices were different from 

 this, labour would be transferred from the production of the one to that of the other, so as to 

 tend to restore the equality. But between foreign countries there is no such tendency to 

 equilibrium between price and labour, because labour is not transferred from one country to 

 another when the prices are in a different ratio. A pound of tea, if produced in China by the 

 same labour which produces a yard of cloth in England, may nevertheless exchange for two 

 yards, or for half a yard : for there will not be a transfer of tea-producing labour to produce 

 cloth, in the first case, or of cloth-producing labour to tea in the second. Hence then the 

 relation of prices of commodities, native and imported, is not governed by the equations 

 already given. By what then is it governed ? What is the principle which regulates inter- 

 national values? (Mill, Polit. Econ. n. 121.) 



34. The principle which regulates such values is (in addition to the principle of supply 

 and demand already spoken of,) this: — that when the international trade has been established, 

 the relative value of all commodities which are exported and imported is the same in the two 

 countries (omitting for the present the cost of carriage). This we may call the principle of 

 uniformity of international prices. It is evident that if tea and cloth are exchanged between 

 China and England, the rate of exchange of the two must be the same in the two countries : 

 for if it were not, the current of trade would be determined one way or other, and would, by 

 increasing the import of the one commodity or the other, tend to restore the equilibrium. 



35. In order to apply this principle, let there be two commodities (C) and (D) (cloth 

 and linen for example) : and let C and D represent the value of a unit (yard) of each in terms 

 of any other commodity. 



Vol. IX. Part I. 18 



