CHAPTER I

MECHANISM OF EXCHANGE

WE have seen how Division of Labour brings about an enormous increase of the effectiveness of human exertion when applied to the satisfaction of human want.

But our wants are for many and diverse things; divided labour makes only one. Hence each maker must exchange the surplus of the one thing he makes for the other things he wants, made by other workers. Consequently, exchange is at once the result and the condition of any really effective production. On the road of man's progress there is but one signpost, and the legend on it reads:-" You do that, and I will do this, and then we will exchange." And as humanity travels along that road, the "that" and the "this" of the signpost will apply to ever smaller and smaller fractions of an ever larger and larger total of production. But this gradual change, far from diminishing the necessity of exchange, makes it ever more imperative. If man cannot live by bread alone, still less can he live by making screws alone; and least of all by making only the groove in the head of the screw. To the primitive family as it lived in our own middle ages, making almost everything for itself, and doing without almost everything that it could not make, there

was but small need, and smaller opportunity, for exchanging. In its fields that family grew its own food, and reared and sheared its own sheep; it built and patched the hovel that was its home, and in that home spun and wove such clothing as its poor craftsmanship allowed; and that was all. It is only when production increases, when crafts are discriminated, and a disposable surplus is obtained, that exchange begins to be organised. and commerce comes into the world, to minister to the diverse wants of man. But before exchange can proceed beyond the stage of the simplest kind of barter, or the direct exchange of things for things, there are difficulties to be overcome. In the first place a man who has made one thing and wants another, may not be able to find a man who has what he wants and wants what he has. A man has made a hat, and wants a pair of boots. But when he takes the hat to the bootmaker, that worthy explains that he has a hat already, and that he wants not a hat, but a joint of beef. Their wants and their supplies do not mutually fit; and we seem to find them in a sort of commercial no-thoroughfare. But this is not all. Two grain merchants may be supposed to meet, under circumstances of extraordinary convenience, one of whom has barley and wants wheat, and the other has wheat and wants barley. Still there will arise between them the question as to how much barley for ten bushels of wheat, and much time may be lost before they can come to an agreement as to the terms of their exchange.

Now these two difficulties must be overcome, on pain, if they be not surmounted, of civilisation having to halt on the road of, "You do that, and

I will do this." So they have been surmounted, by the contrivance of selecting some one commodity, which everyone in the community holds in high esteem, and which therefore everyone is content to take in exchange for his commodity, being confident that he will be able, in turn, to exchange it for the commodity he wants. In this way indirect, or as it is sometimes called, triangular, barter takes the place of direct barter, and the exchange of any one thing for any other is rendered possible. And the commodity thus chosen will constitute the "money" of that community. Our hatter and our bootmaker will experience no more difficulty. The hatter sells his hat for a certain amount of this money, and then sells this money to the bootmaker in exchange for the boots; and the bootmaker, in his turn, sells the money again for the beef he wants. Of course, not all the money need exchange each time. The hatter may be able to obtain the boots for less than the whole of the money he got for his hat; and similarly the bootmaker may get all the beef he wants for less than the whole of the money he received from the hatter. So that the bargain is not only rendered possible which would otherwise not have taken place at all, but, if the money has been well selected in that community, its terms are rendered more precise. And the difficulty of the two grain merchants is overcome in similar fashion. For it will be easy for them to ascertain how much money is being offered on that day for a bushel of wheat, and how much for a bushel of barley; and at once their problem is solved.

Now the money, we have said, is some one thing, or, at most, some very few things of similar kind,

chosen by the community; and it is always a thing held in high esteem in that community, since only in that case is it certain of universal acceptance in exchange for all other things. It is clear, therefore, that many different things might be chosen; and as a matter of fact, many different things have been chosen at different periods in the history of man's advance. And in that history there are, roughly speaking, four main periods, or stages of human progress. Man has passed through a hunting stage, a nomad stage, an agricultural stage, and is now living, the most civilised part of him at least, in a commercial stage. For each stage there has been selected a kind of money suitable to that stage; suitable, because while man was in that condition of life, the thing chosen was one of his most treasured possessions. To the hunter living in the time when "the swiftest men caught the most animals and the swiftest animals got away from the most men, so that the slow animals were eaten and the slow men starved to death," there is not likely to be anything more highly esteemed than the skins of the animals he has caught; and accordingly, for that stage of our history, we find that the money chosen consisted of the skins of wild animals. And where men still live by hunting, as in parts of far northwest America, such money is still in evidence. It is doubtful if current literature contains more than one reference to it in any but an historical sense; and that is in Job ii. 4, where it is written, Skin for skin, yea all that a man hath, will he give for his life."

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But in the next stage of man's advance, when he is living as a nomad, wandering over the, as yet,

ownerless land with his flocks and herds, those flocks and herds are his wealth, and he measures his wealth in terms of cattle. As to this kind of money there is no lack of literary reference, for the words for money and for cattle are closely connected in most of the languages of the west. The Latin pecus, a flock, gives us all such words as pecuniary. Cattle being reckoned then, as now, by the caput or head, economics is endowed with the important term capital. The Teutonic vieh, cattle, still lurks behind the doctor's fee, and fief, and feud, and feudal system. Right through history the connection runs. Homer assesses the value of the prizes set up by the hero Achilles at the funeral games in honour of his friend Patroclus; and every prize is worth so many oxen. And the ancient Welsh romance tells how Kulhwch, suitor for the hand of Olwen, the fabled beauty of King Arthur's time, was dressed so richly that the ornaments from his knee to his toe had cost three hundred kine.

And then man's wandering ceases and he settles down to dig. And the useful metals, the iron and the bronze, assert themselves as the most estimable of his possessions; and of iron and of bronze is his money also made. Of such money there are numerous surviving specimens.

And lastly, when civilisation has resulted in commerce and commerce extends civilisation, the precious metals emerge as the most fitting substance for the money of the commercial State.

There is here clearly an example of the survival of the fittest. There must be reasons which have led to the selection of gold and silver as the moneymaterial of the civilised world, and the reasons