Mill Theory of Reciprocal Demand:

Mill had extended his profound and in-depth understanding of supply and demand into the area of international values. By citing Ricardo as the leading writer on the issue of comparative costs and advantage, Mill had proceeded to construct a model that included both cost and demand determinants of international values and the terms of trade. Mill indicated that trade will take place at such prices as are required to make the value of imports equal the total value of exports, simultaneously, for each party to the trade. If the value of exports does not equal the value of imports to both the countries at the same time, price adjustment will take place to bring the equilibrium about. According to Mill' s theory of reciprocal demand the produce of a country exchanges for the produce of other countries, at such values as are required in order that the whole of her exports may exactly pay for the whole of her imports. This law of International Values is basically an extension of the more general law of value, which is known as the equation of supply and demand. The value of a commodity always so adjusts itself as to bring the demand to the exact level of the supply.

But all trade, either between nations or individuals, is an interchange of commodities, in which the things that they respectively have to sell constitutes also their means of purchase: the supply brought by the one constitutes his demand for what is brought by the other. So that supply and demand are but another expression for reciprocal demand: and to say that value will adjust itself so as to equalize demand with supply, is in fact to say that it will adjust itself so as to equalize the demand on one side with the demand on the other.