THE MONEY PROBLEM

Chapter IV.

EXCHANGE-BARTER



IN the early stages of civilization the satisfaction of human wants is usually accomplished by exchanging one kind of commodity for another without the intervention of any material medium.  Thus, corn is exchanged for cattle, wine for silver, and so on.  Such transactions are termed barter.  For many ages and among many people the only form of exchange was that of barter, pure and simple.  Economists tell us how impossible it would be for commerce to exist without the aid of money.  Whilst admitting the great assistance that this intervention is, it must not be forgotten that commerce existed long before money was known.  It must not be supposed, as some writers assert, that absence of the medium of exchange prevents the possibility of satisfactory exchanges.  The fact of an exchange taking place, providing the conditions are free, evidences satisfaction, since this is its natural result. Neither is it true that without a material medium it would be impossible to compute the proportion or ratio in which two different commodities should exchange.  This computation of ratios, which will be considered more fully in another chapter, undoubtedly accompanied every act of barter by man in the primitive stage.  Products were not exchanged for products without some regard to the cost of production, or difficulty of attainment. Thus we learn that there are African tribes who compute the value of things by a purely ideal system.  “ They calculate the values of things in a sort of money of account called ‘macutes.’  They say one thing is worth ten macutes, another fifteen, another twenty. There is no real thing called a macute, it is a conventional unit for the more convenient comparison of things with one another.”*  It is unnecessary to shew the inconvenience that would naturally arise in striving to carry on exchange without the intervention of money.  Endless examples are given in the various works treating of this subject.  A formal expression of a single barter transaction is an equation, as follows :


Commodity A = Commodity B.

The sign of equality is generally used in expressing such a transaction, and means “will exchange for,” or “ exchanges for.”  A single exchange involves two dissimilar commodities.  It constitutes the exchange of one kind of utility for another.  Men do not exchange commodities for like, but for unlike commodities.  It also involves two persons, and therefore two distinct desires, or two distinct classes of desires.  Further, since the exchange is brought about by the desires of two persons to acquire each what the other possesses, “an exchange evidently requires a concurrence of two minds.”**  The cause of barter or exchange may, therefore, be defined as reciprocal desires ;  and since its object is to satisfy these desires, the effect of a complete exchange is reciprocal satisfaction ;  and as commodities are those products that by their nature or operation satisfy human desires, we may say that the test of a complete exchange transaction is reciprocal satisfaction.  The importance of this test will be fully realized only when we come to discuss the subject of money.




* J.S. Mill, “ Political Economy.”

** Macleod, “ Theory of Credit.”