WE HAVE SEEN IN THE PREVIOUS chapter how exchange benefits each participant and how the division of labor on a market increases productivity. The only exchange so far discussed, however, has been direct exchange, or barter—the exchange of one useful good for another, each for purposes of direct use by the party to the exchange. Although a treatment of direct exchange is important for economic analysis, the scope for direct exchange in society is extremely limited.

The tremendous difficulties of direct exchange can be overcome only by indirect exchange, where an individual buys a commodity in exchange, not as a consumers’ good for the direct satisfaction of his wants or for the production of a consumers’ good, but simply to exchange again for another commodity that he does desire for consumption or for production. Offhand, this might seem a clumsy and roundabout operation. Actually, it is indispensable for any economy above the barely primitive level.

The establishment of a money on the market enormously increases the scope for specialization and division of labor, immensely widens the market for every product, and makes possible a society on a civilized productive level. Not only are the problems of coincidence of wants and indivisibility of goods eliminated, but individuals can now construct an ever-expanding edifice of remote stages of production to arrive at desired goods.

We have seen that every good is “in supply” if it can be divided into units, each of which is homogeneous with every other. Goods can be bought and sold only in terms of such units, and those goods which are indivisible and unique may be described as being in a supply of one unit only. Tangible commodities are generally traded in terms of units of weight, such as tons, pounds, ounces, grains, grams, etc. The money commodity is no exception to this rule. The most universally traded commodity in the community, it is bought and sold always in terms of units of its weight.

We have analyzed the exchanges that take place in existing stock and the effect of changes in the stock of a good. The question still remains: On what principles is the size of the stock itself determined? Aside from the consumers’ or producers’ goods given directly by nature, all goods must be produced by man. (And even seemingly nature-given products must be searched for and then used by man, and hence are ultimately products of human effort.) The size of the stock of any good depends on the rate at which the good has been and is being produced.

For the sake of clarity, the examples of exchangeable goods in this chapter have mainly been taken from tangible commodities, such as horses, fish, eggs, etc. Such commodities are not the only type of goods subject to exchange, however. A may exchange his personal services for the commodity of B. Thus, for example, A may give his labor services to farmer B in exchange for farm produce. Furthermore, A may give personal services that function directly as consumers’ goods in exchange for another good.

As we have stated above, the origin of all property is ultimately traceable to the appropriation of an unused nature-given factor by a man and his “mixing” his labor with this natural factor to produce a capital good or a consumers’ good. For when we trace back through gifts and through exchanges, we must reach a man and an unowned natural resource. In a free society, any piece of nature that has never been used is unowned and is subject to a man’s ownership through his first use or mixing of his labor with this resource.

This work is largely the analysis of a market society unhampered by the use of violence or theft against any man’s person or property. The question of the means by which this condition is best established is not at present under consideration. For the present purpose, it makes no difference whether this condition is established by every man’s deciding to refrain from invasive action against others or whether some agency is established to enforce the abandonment of such action by every individual.

We have seen that market price is, in the final analysis, determined by the intersection of the supply and demand schedules. It is now in order to consider further the determinants of these particular schedules. Can we establish any other conclusions concerning the causes of the shape and position of the supply and demand schedules themselves?