Barter
The author summarizes some of the key points of the first part of this study:
- The value of things to the supplier reflect his expenses
- The value of things to the buyer reflect the value he will obtain
- The two have nothing to do with one another, such that the price is a negotiation between a buyer and a seller and reflects their idiosyncrasies and subjective valuations
In any act of exchange, it is necessary for both parties to feel they are getting more than they could gain by their individual effort to produce the same good.
Barter is the direct trade of good for good. The tailor who trades a shirt for several loaves of bread recognizes that it required less effort for him to sew a shirt than to make the same quantity of bread by his own labor, and the baker recognizes that it required less effort for him to bake the bread than to make a shirt by his own labor. Each thinks thy got the better of the other, and both indeed gained more value than they offered in trade as a result of their individual productive capabilities.
On occasion, direct barter is convenient, but when one considers the wide variety of goods available in the marketplace, it would be exceedingly inconvenient for each trader to assess his products value in relation to other goods. This, along with a myriad of other inconveniences of direct barter, leads to the establishment of a common commodity that all producers use as a basis for the valuation of their own goods - such that all in the market bargain based on the common commodity, which serves as a token of exchange among them.
The identity of the common commodity is incidental - men have traded for grain, salt, and various other goods in various places and in various times - though for reasons given in the previous chapter, markets tend to gravitate toward precious metals over time.