Under the head of consumption of wealth were discussed wants and the means of gratifying them. The theme of consumption in economics is the explanation of demand. In the chapters on production which followed, the problem of supply held the center of interest. The present chapter on exchange is concerned with the balancing of supply and demand in the market. It is concerned with value and its related problems, such as money and credit and banking.

92. The Meaning Of Exchange

An exchange is a transfer of goods from one party to another and a corresponding transfer of goods from the second to the first, each transfer being made in consideration of the other. It is a two-sided transfer of goods. In this respect it differs from a gift, which is a one-sided transfer of goods.

93. The Advantages Of Exchange

As we have already learned, in the case of the independent household economy there was no exchange. The family produced what it consumed. The same man was farmer, and tailor, and shoemaker, and blacksmith, and miller. While he did many things, he did none of them exceptionally well. Later we find that division of labor has been introduced and that one man is a farmer, another a shoemaker, another a tailor, and so on. Each now does only one thing, but he does that thing well. The farmer can now get more and better shoes, clothes, and bread, by exchanging for them the products of his farm, than he was able to get when he produced all of them himself. Each of the others finds the same thing true. He is better off when he produces one thing and exchanges it for many things than when he produces everything for himself and lives without exchange. When the tailor exchanges his product for that of the shoemaker he does so in order to benefit by the transaction. But the benefit which he receives is not an injury to the shoemaker; for the shoemaker, too, has made the exchange because he expects to profit by it. Each of the two gets more than he gives. The explanation of this is to be found in the fact that possession utilities have been created by the exchange. The product which each gives in exchange is worth more to the other than it is to the one who has produced it.