III.
EXCHANGE.
1. Exchange is the mutual and voluntary transfer of the right of property held by different persons. This implies, (a) the existence of the right of property; (b) that the transfer must be mutual, otherwise there is no exchange; (c) that it be voluntary, otherwise it would be robbery.
2. The principles that form the basis of exchange are the same as those implied in the great law of association and individuality; namely, those which give rise to the combination and division of labor. There is usually some one kind of labor, or at most a few kinds, for which each individual is competent. But the variety of occupations so nearly corresponds with the variety of aptitudes in every well-ordered community, that each may, with little effort, find the calling to which he is suited.
But while each individual is thus limited in his productive capabilities, his claims and wants are nearly limitless. He is in need of a thousand commodities, only a very few of which he can produce. He depends for the remainder of these upon his fellow-men. On the other hand, he can produce a thousand times as much of the few kinds of commodities to which he devotes himself, as he himself needs. These he transfers to his fellow-men, taking in return the surplus of their several products. This is exchange, or commerce. It is implied in the very constitution of man. Association is an imperative condition of humanity.
3. A distinction is sometimes made between commerce and trade—a wise distinction, as it seems to me, though observed by but few writers. The former is the object to be accomplished; the latter is the agency through which it is accomplished. Thus, a farmer has wheat, butter, eggs, poultry, wool, etc., which he wishes to exchange for cloth, sugar, agricultural implements, boots and shoes, and a hundred other articles. He can not go to the several producers of these, carrying his own products to exchange for them, except at immense disadvantage. Hence arises the necessity for the trader, or merchant. Trade and commerce have sometimes been represented as mutually antagonistic. This is true only to a certain extent. The great economical point to be guarded is to have no more traders than are necessary to make the exchanges. When the industrial and commercial conditions of a country are such that the producers and consumers, who are the real exchangers, are placed and kept at a great distance from each other, so that they can not combine with each other except through the agency of a great number of middle-men, the conditions are highly detrimental to the interests of the parties chiefly concerned. Beyond a certain point, the greater the power of trade, the worse it is for commerce. It is nevertheless true that there are certain natural obstacles to direct commerce which can be surmounted only by some kind of intermediate agency; and this makes the trader necessary. In this respect, and to this extent, trade is an aid to commerce. Yet commerce should be as direct as possible. To this end it is desirable that the greatest number of commodities for which productive facilities exist, should be produced in the same community.
4. The general law of exchange is value for value. This will be obvious if we recur to one of our statements concerning the nature of value, namely, that is the quantity of one commodity that may be equitably exchanged for a given quantity of another. It will be still more obvious if we recall the complete definition: value is our estimate of the sacrifice requisite to secure possession of a desired object. Thus, if it require the labor of one day to produce a pair of shoes, and the labor also of a day to produce three bushels of oats, then the rule of exchange would be three bushels of oats for a pair of shoes, because the required labor in the one case is precisely equal to that in the other.
This is the fundamental law, but it is modified in its operation by certain other facts and principles. Chief among these is the law of supply and demand. By supply is meant the quantity of any commodity which is in the market. Demand signifies the quantity which is desired at a given price. The definitions are sometimes erroneously given of supply as the quantity which exists, and demand as the quantity desired. But a man may offer for sale a load of wheat, provided the price is a dollar a bushel, but withdraw it from the market if the price is but ninety cents. A thousand people in a certain town may desire diamond necklaces, but not half a dozen may be able to purchase them. Hence supply is all that is offered in the market; and demand is desire with ability to purchase.
Demand and supply affect prices in this way. Suppose a community has been exclusively using wood for fuel, and their wood can be had at a certain price. After a time a coal mine is discovered in the vicinity, and coal can be furnished much cheaper than wood. This would lessen the demand for wood. As there would be the same amount for sale as before, the seller would be in competition, and the price would fall. So if for any reason before the discovery of the coal the supply of wood had been diminished one half, the demand being the same, the price would rise. Thus we have the general principle that other things being equal, the greater the supply, the less the price; the smaller the supply, the greater the price; the greater the demand, the greater the price; and the smaller the demand, the less the price. In other words, the price varies directly as the demand, and inversely as the supply. In general price varies as the cost of production plus or minus the effect of supply and demand. These principles are affected again in many ways which we can not here explain. Yet the variations are always temporary, and the price or market value always tends to seek the level of cost of production.
5. Trade has been spoken of as an agent of exchange. An instrument also is needed. The primitive method of exchange was by barter. That is, by giving the commodity one produces for that which one desires to possess. But this was early found inconvenient. The man who made shoes and wished to exchange some of them for a coat, would not readily find a coat-maker in want of shoes; or if he should, the latter very likely would not want just so many pairs of shoes as would be equal in value to the coat. All other exchanges might be at a similar disadvantage. What is needed is a commodity which will be a medium of exchange—which every one will be willing to receive for any commodity which he has for sale, and which will command anything which he wishes to buy. Such a commodity is usually the main element in the machinery of exchange, and is what constitutes money.