Exchange takes place because a greater amount of values can be produced through what has just been termed division of labor. In the primitive organization of society, division of labor was very limited. Individuals performed each for himself the principal operations necessary for the support and improvement of existence. The early family was in part founded upon primitive division of labor and thus had an economic side. Modern society rests fundamentally upon a very high development of the division of labor. Specialization in production renders necessary production on a large scale, and large-scale production implies an increasing degree of specialization. Commercial products are thus widely separated from the consumers who eventually make use of them. This fact necessitates a series of exchanges of goods. Exchange is thus essential to the organization of the modern world.

Not only is the high development of division of labor essential to modern business and industry, but it is also true that, as exchange advances toward more and more complex stages, the ascertainment of value or the rate at which commodities shall exchange for one another becomes more and more difficult. So long as a given product can be more or less directly connected with the use to which it is to be put, there is a subconscious measure of its exchange value which at least serves as a regulator or controlling factor. When the item produced finds its value only as an incident in production of some far more highly complicated article - as, for instance, in the case of fuel used to operate spinning and weaving machinery - this indirect utility measure of exchange value disappears or becomes so vague as to be unavailable. The modern process of exchange, therefore, has, as a secondary reason for its existence, the necessity of determining the ratios of exchange of goods for one another. The ascertainment of the proper price of an article and the adjustment of that price in such a way as to permit regular and continuous production of it to occur in the desired quantity is, in large measure, dependent upon the proper operation of the mechanism of exchange.

Because of the complexity of the modern exchange process, there has developed much antiquarian or historical discussion regarding the successive steps by which the use of money was brought to its present status. The only really important matter in this whole historical discussion about the origin of money is that methods or processes of exchange differ and develop from period to period, there being no single or universally most advantageous way of exchanging goods. What is desired is to bring about their movement from producer through the various intermediate stages to the consumer with as little friction, cost, or loss as may be. This is sometimes effected by barter, although as seen at the outset, not usually, owing largely to the inconvenience of barter. It may sometimes be effected by sale for money and the subsequent purchase of other goods. Sometimes the most convenient method of transfer is afforded by a deferred exchange, a seller waiting for the return of other goods (desired by himself) by the trader who has taken his product. This kind of exchange is usually termed a credit operation or credit transfer.

It is clear, however, that in every condition or stage of economic life there is a kind of exchange or a type of trading which best serves the needs of the parties to it, or the needs of the community, or both. The function and duty of business is to ascertain how such transfers may best be made and to bring them to fruition. The function of banking is to supply means of actually consummating the exchanges or transfers.