Trade is an essential part of the Productive Process in Economics. It is inseparable from Labor specialization. If some Labor be devoted to the Production of one kind of Artificial Objects, one kind of Wealth—food, for instance—the producers of such Wealth must satisfy their desires by trading with other kinds of Labor specialists—clothing producers, for instance—for what the latter make and the former do not make. Evidently, then, the more minutely Labor takes on specialized activities, the more extensive and intensive must Trade become. And when, as in our civilization, Labor is so minutely specialized that nobody can satisfy his Economic desires by his own productive activities directly, Trade is an indispensable part of the Productive Process.
In form it is an interchange of commodities; but in essence it is, as already explained, an interchange of Labor functions—of human services.
Springing out of a manifestation of natural law which is rightly distinguished in Economics as “division of labor,” and thus inspiring and facilitating specialization in the Production of Wealth, Trade is a natural phenomenon. Within manifest limits and without extra exertion two producers can produce more than twice as much as one, four more than twice as much as two, and so on, subject only to the limitations of Natural Resources. By exchanging products they therefore naturally multiply their productive powers.
For a crude illustration, is it not plain that two frontiersmen working cooperatively can build a habitation for each quicker and better than either could build one for himself? Or two messengers, each charged with one errand a mile away in one direction from a central point and another a mile away in the opposite direction, can they not do the four errands twice as quickly and easily, even if not more than twice, if they divide their functions? By such division each messenger would walk one mile out and one back, two for each and four in all, delivering four messages; whereas, without such division, each would travel two miles out (one in each direction) and two miles back, four for each and eight in all. In addition to the saving of time and energy, each will have saved productive capabilities too subtle for specific enumeration.
The principle of those illustrations applies to the whole Productive Process. By division of Labor, that is to say, by Labor specialization, Economic accomplishment is multiplied beyond all the possibilities of isolated individual production.
But division of Labor would be useless were it not for Trade. Each of those frontiersmen must trade his share in the other’s habitation for the other’s share in his habitation; each of those messengers must exchange his claim to compensation for delivering one of the other’s two messages for the other’s claim to compensation for delivering one of his. This, then, is the sum and substance of Trade in Economics—adjustments of compensation for specialized Production through division of Labor.
The effect is magical. By division of Labor and Trade the single individual becomes a vital part of a comprehensive human organism, of a greater man, of the Social or Economic Man—a Man of almost infinite Economic powers.
Those two kinds of Economic energy, making and trading, permeate the multitudinous phenomena of that Productive Process in the course of which Man draws forth Artificial Objects from and upon Natural Resources, for the satisfaction of human desires; or, to use the technical Economic terms, in the course of which Labor produces Wealth from and upon Land.
3—Utility, Value, Money, Price, Banks
In connection with division of Labor and Trade we are brought into contact with the phenomena of Economic Utility and Economic Value.