Libertarian Land Philosophy:
Man's Eternal Dilemma
Oscar B. Johannsen, Ph.D.
BOOK II: Exchange and Money
Chapter 1 - Exchange
"Fundamental economics are very simple; the
humblest of us understand and practice them all the time, though we
are like Moliere's hero when we do it. The trouble is that
convenience introduces complications. Money is a complication; other
evidences of debt, such as checks, drafts, notes, bills of exchange,
are complications introduced for convenience. Then some person with
a predatory sagacity sees a way to exploit the complications and
does so; then another and another; indefinitely. When the process of
exploitation has gone far enough, there are collisions of predatory
interest, and finally a great general dislocation. When this takes
place, if people had their minds on fundamentals, they would see
that the only thing to do is to recede. But their minds are set on
the complications, and all they can think of is driving ahead and
devising a new and more intricate lot of complications to pile on
top of those that of done the mischief. All this means an increase
of power and prestige for the State, and corresponding degeneration
of society." [Albert Jay Nock -- A Journal of Forgotten Days ]
Men dream of cornucopias existing in Gardens of Eden from which they
can drink, eat, and live life to the full. And, yet, the very earth
they inhabit is a horn of plenty beyond their ability to imagine.
Though poets revel in exotic descriptions of the wonders of the earth,
its riches are so vast that even their rhapsodies are but the merest
intimations of the truth. So men need not dream. If they but realized
it, there exists in the earth an actuality, which dwarfs their
visions.
The riches of this cornucopia vary because the land differs in the
prizes which it confers. Some land hides within its depths the shining
grains of gold which make men eyes glitter brightly with desire. Some
land is as black as ebony, so fertile is it, and some land lies barren
under a pitiless sun, a desert to all things.
Because of these unequal opportunities of the land, different modes
of production are pursued. Those dwelling on the seashore fish in the
waters of the oceans while those in the fertile highlands till the
soil or raise cattle.
Just as the earth's treasures differ, so do men's talents differ.
While those at the seashore must perforce make the sea the source of
their livelihood, not all men fish. Some make tackle, fishnets and
boats, depending on their natural aptitudes. Those in the highlands
must farm or raise cattle, but not all. Some who have the talent make
the plows, reapers and branding irons which the farmers and cattlemen
require.
This sharing of the work is known as the division of labor. Men are
not jack-of-all-trades, but rather specialists. This division of labor
could not exist unless accompanied by a phenomenon unique to human
beings --- exchange. Would a man dare to spend his lifetime building
boats or weaving fishnets unless certain he could exchange them for
food, clothing and shelter?
The division of labor occurred quite unconsciously and, at first, so
gradually that it was hardly perceptible. It happened because men were
in areas which differed in the type of production which was possible
there, and also because men naturally differ in the degree and kinds
of skill they possess. The division of labor occurred, in short,
because land differs in productivity and men differ in ability.
Generations must have passed before the man arose who devoted all his
time to making boats. No doubt, his grandfather had fished and made a
boat or two. The son must have spent more time on them than on
fishing, and was succeeded by the grandson who made boats his full
time specialty.
Similar transitions in other modes of productions occurred
simultaneously. The result: more fish were caught when those most
expert fished; more boats were made when those most highly skilled
produced them; more crops were raised when those with green thumbs
farmed; and more farm tools were produced when those with mechanical
bents made them. Through exchange each wound up with more goods than
if each attempted to produce them all by himself.
Was altruism involved? Hardly. Each man was thinking of himself. The
fisherman loved to spend his days bobbing on the surface of the sea in
the clear invigorating air. So skillful was he that he had more than
enough fish for his needs and willingly exchanged some of the excess
for a boat or for fishnets. The boatwright's creative instinct was
kindled each time he made a new one. He made more and more with
increasing skill. And everyone was thinking of himself. For the
fisherman, it was less irksome to fish while the boatwright found it
pleasanter to make boats. As long as each looked after his own
interests and wronged no one, all benefited.
In modern society, this division of labor has reached such minuteness
that some people may spend all their time merely making one small
item. They may not even be aware what function it serves. This is
probably carrying the division of labor too far since human beings
have to have a sense of responsibility and knowledge of their work for
it to give some meaning to their lives. But be that as it may, with
the division of labor extremely minute, and with the exchange of
products multiplying, the result is an enormous increase in wealth.
This is the barest thumbnail sketch of that marvelous cooperative
process - the division of labor -- and its corollary -- exchange. It
started quite unconsciously in primitive societies, exists today, and
will in the future as long as men associate with one another.
Precisely, what is exchange?
Exchange is the voluntary surrender of goods for other goods. More
exactly, it is the voluntary surrender of the rights to goods for the
rights to other goods.[1] Goods are wealth and services.[2]
The simplest type of exchange is that of one good for another, as
when an apple is given up for an orange. This is known as direct
exchange or barter. It is the simultaneous exchange of goods at one
place and at one time.
In colonial America, barter was called country pay. The colonists
engaged in barter on a gigantic scale. They exchanged beads, hatchets,
knives, muskets, ammunition, blankets, coats, and biscuits for beaver,
otter, mink, bear, raccoon and fox furs and skins. And in their trade
with Europe, the early Americans exchanged furs, lumber, lumber
products, tobacco, rice, fish and rum for manufactured equipment,
implements, tools, merchandise and goods, Such foreign commerce was
elaborate. For example, New England skippers sailed with cargoes of
dried and salt fish as well as home manufactures to southern ports.
There the goods were bartered for red oak barrel staves, for sugar,
rice and meat. Then they would steer their ships to the West Indies
where the southern products would be bartered for rum, molasses,
sugar, ginger, logwood and tropical goods. These were brought home and
traded with the New Englanders.
John Jacob Astor probably raised barter to the highest level in
foreign commerce through his trade with China during the period
l8l6-1825. His ships, heavily laden, put forth from New York with
blankets, cutlery, muskets, lead, iron, rum, and gin. They tarried at
the Hawaiian Islands to exchange some of the cargo for sandalwood,
which would be left there to be cut up. Then they plied the ocean
waves to the North Pacific, where the Russians held sway. Part of the
original cargo would be bartered with them for seal skins and the fur
of sea-otters. Next they headed south to trade with the natives on the
Columbia River and the coast of California. Having exhausted their
original cargoes, the ships would sail back to the Hawaiian Islands to
pick up the sandalwood which had now been cut. Then, they would take
the long perilous journey to Canton. Here the sandalwood and the furs
would be bartered for teas, silks, nankeens, chinaware, sugar and
spices. The ships. now bulging with these exotic goods, stood forth
for the Hawaiian Islands once again to sell part of the cargo. Then to
New Archangel to barter anew with the Russians. At last, south to
California to exchange the remainder of the Chinese products with the
Spaniards for seal skins, sea-otter, furs. silver and pearl-shell.
Home now? Hardly. Instead. once more, clear all decks for the trip to
Canton to barter the entire cargo for Chinese delicacies and goods.
Finally, at long last, the weary, homesick sailors would clear port
for home -- New York. Three or tour years of the lives of these brave
souls would have slowly passed before they once again saw their loved
ones. And, almost all of this complex trade was carried on by barter
-- the exchange of merchandise for merchandise.
In an exchange both parties voluntarily surrender their goods. A gift
is not an exchange inasmuch as for nothing is expected in return, even
though another gift may subsequently be given. A man who is coerced
into giving up goods even if he receives others in return has not been
involved in an exchange. He has been robbed. Exchange always involves
voluntary action on the part of both parties.
Exchanges occur because each party believes he gains. Exchanges are
made on the basis of inequality of gains, psychic or otherwise, and
not on the basis of equality. Would two men who had identical books
exchange them? The books are equal. The orange-owning man desires his
neighbor's apple because he believes he will gain greater satisfaction
from the succulent apple than from the orange. At the same time, his
neighbor believes he will gain greater satisfaction from the luscious
orange or he will not hand over the apple.
But, therein lies the rub. Barter can be carried on between two
people only if this coincidence of desires exists. The apple-owning
man must desire the orange at the same time that the orange-owning man
desires the apple. This is rarely true, so many intermediary barters
might be required. The apple-owning man may have to exchange his apple
for a banana, then the banana for a pear and then the pear for the
orange. since the orange-owning man may want a pear.
Such exchanges gave birth to the use of a specific good as an
intermediary. This good is called money. In a fishing community,
fishhooks might be the money as all fishermen could use them. A
farmer, entering that area, would soon learn it was easier to exchange
his produce for fishhooks and then to exchange them for the fish he
desired. One of the unique advantages of money is that it cuts down
the intermediary exchanges to one. Money does not eliminate barter, as
many assume. It merely makes most exchanges indirect, with money
acting as a medium or catalyst. The use of money is merely an
extension of barter. It is barter. To exchange potatoes for fishhooks
(the money of the community) is merely an act of barter. Subsequently,
to exchange the fishhooks for fish is another act of barter. In using
money, bartering is still being practiced. It merely cuts down to one
all the intermediary barters which would otherwise probably be
required.
It must not be imagined, however, that the evolution of money
eliminated direct barter in modern society. Gigantic petroleum
companies barter thousands of barrels of oil for steel and equipment.
Countries often barter their products for other countries' produce.
Before World War II, Nazi Germany engaged in huge barter transactions
with other nations as she had practically no gold and her domestic
policies restricted ordinary international trade, She bartered
machinery for oil from Mexico; rolling stock for wheat and beef with
Argentina; pipe and copper sulphate for bananas from Honduras. In
1939, she made a treaty with Soviet Russia in which she was to
exchange industrial machinery and arms for Russian oil, wheat, cotton,
fodder and manganese.
People barter everyday without realizing it. In purchasing a new car,
a man turns in his old one. He is bartering his old car for a new one.
True, he adds money to the deal, but, nonetheless, he has engaged in a
barter transaction.
It must not be assumed that money makes the exchange of goods
infinitely simple. If it did, advertising would not be needed. Women
wear themselves to a frazzle shopping. They have money to burn which
they are anxious to exchange for dresses, shoes, coats and hundreds of
other things, and yet they will return home and complain that they
could not find a single thing to purchase.
Before money was ever thought of, another extension of barter
occurred. Because men have memories, they can extend barter over a
period of time. A man barters an apple today on the promise of
receiving an orange tomorrow. This extends barter from a simultaneous
exchange of goods to one over a period of time. This type of barter
involves the use of credit.
Credit is the exchange of present goods for future goods. More
exactly, it is the exchange of rights to present goods for rights to
future goods.
Since credit is barter over time it might have been better to have
termed it time-barter. The pedant may argue that a simultaneous
exchange of goods never occurs in the world of reality. Hence all
barter transactions might be termed credit transactions, for one good
is always exchanged at a later time, even though it may be merely a
fraction of a second later.
It is only in the minds of men that the exchange occurs
simultaneously. The difference between ordinary barter and credit is
the intent of the parties. In ordinary barter, the intent is that
there shall be a simultaneous exchange. Since men deal with physical
quantities, the delivery of the goods actually may take place at
different times and locations. In a credit transaction, the intent is
that there shall not be a simultaneous exchange, but that one or both
of the goods will be delivered at a later time.
An elaboration of credit and its relationship to money and banking
will he made in later pages. At present, it is sufficient if it is
recognized that, contrary to what most people think, credit is the
actual bartering of goods received in the present for goods to be
received in the future.
For purposes of analysis, it is usually stated that men have three
principal means of effecting exchanges -- barter, credit, and money.
It is important to remember, however, that credit and money are merely
special extensions of barter.
Recapitulation
The combination of land and labor, that is the combination of
different environments (land of different productivity) and men of
different capability (labor of different skills and degrees of skill)
led to the division of labor. This process occurred naturally without
coercion or conscious direction on anyone's part. But the division of
labor can occur only if men can exchange the goods they produce for
the goods they desire. Therefore, simultaneously with the evolution of
the division of labor came the exchange of goods.
Exchange is the voluntary surrender of goods for other goods. More
exactly, it is the voluntary surrender of the rights to goods for the
rights to other goods.
All exchanges are barter changes, that is, the exchange of one good
for another. Two extensions of barter are money and credit.
Money is an article of wealth which eliminates the need for many
intermediary barters. It eliminates the necessity of a coincidence of
desires existing between the two parties, who, it might be said,
ultimately exchange their goods with one another.
Credit extends barter from an on-the-spot transaction to one over a
period of time. It is the exchange of the rights to present goods for
the rights to future goods.
NOTES
- The question of rights is
discussed in the Chapter on Rights.
- To designate -goods - to mean
wealth and services is to include something objective (walth) with
something intangible (services). This is justified to avoid
cumbersome circumlocutions. It is not a definition but a simpler
expression than "wealth and services". Parenthetically,
there may be some justification for it is not so much an objective
thing which is desired but the services which the article gives. A
man wishes the services which an orange yields in alleviating
hunger, or the service which a car renders in the form of
transportation.
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