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SCI LIBRARY

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


  1. The question of rights is discussed in the Chapter on Rights.
  2. 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.
Preface and Introduction

BOOK 1

Chapter 1 * Chapter 2

BOOK 2

Chapter 1 * Chapter 2 * Chapter 3 * Chapter 4
Chapter 5 * Chapter 6

BOOK 3

Chapter 1 * Chapter 2

BOOK 4

Chapter 1 * Chapter 2

BOOK 5

Chapter 1 * Chapter 2

BOOK 6

Chapter 1 * Chapter 2

BOOK 7

Chapter 1 * Chapter 2 * Chapter 3

BOOK 8

Chapter 1

BOOK 9

Chapter 1 * Chapter 2

BOOK 10

Bibliography