WEBVTT NOTE 3.03. Some Implications of the Emergence of Money 1 00:00:00.000 --> 00:00:05.000 3. Some Implications of the Emergence of Money 2 00:00:05.000 --> 00:00:13.000 The establishment of a money on the market enormously increases the scope for specialization and division of labor, 3 00:00:13.000 --> 00:00:21.000 immensely widens the market for every product and makes possible a society on a civilized productive level. 4 00:00:21.000 --> 00:00:28.000 Not only are the problems of coincidence of wants and indivisibility of goods eliminated, 5 00:00:28.000 --> 00:00:37.600 But individuals can now construct an ever-expanding edifice of remote stages of production to arrive at desired goods. 6 00:00:37.600 --> 00:00:49.760 Intricate and remote stages of production are now possible, and specialization can extend to every part of a production process as well as to the type of good produced. 7 00:00:49.760 --> 00:01:06.760 Thus, an automobile producer can sell an automobile in exchange for the money, for example, butter or gold, and then exchange the gold partly for labor, partly for steel, partly for chrome, partly for rubber tires, etc. 8 00:01:06.760 --> 00:01:14.760 The steel producers can exchange the gold partly for labor, partly for iron, partly for machines, etc. 9 00:01:14.760 --> 00:01:21.360 etc. Then the various laborers, landowners, etc. who receive the gold in the production 10 00:01:21.360 --> 00:01:29.400 process can use it as a medium to purchase eggs, automobiles or clothing as they desire. 11 00:01:29.400 --> 00:01:35.620 The whole pattern of a modern society is thus built on the use of money and the enormous 12 00:01:35.620 --> 00:01:42.260 importance of the use of money will become clearer as the analysis continues. It is evident 13 00:01:42.260 --> 00:01:58.260 It is a mistake on the part of many writers who wish to set forth the doctrines of modern economics to analyze direct exchange only and then to insert money somewhere at the end of the analysis, considering the task finished. 14 00:01:58.260 --> 00:02:09.260 On the contrary, the analysis of direct exchange is useful only as an introductory aid to the analysis of a society of indirect exchange. 15 00:02:09.260 --> 00:02:15.260 Direct exchange would leave very little scope for the market or for production. 16 00:02:15.260 --> 00:02:24.260 With the great variety in human skills and natural resources resulting in enormous advantages from the division of labor, 17 00:02:24.260 --> 00:02:31.240 The existence of money permits the splitting of production into minute branches, each man 18 00:02:31.240 --> 00:02:37.900 selling his product for money and using money to buy the products that he desires. 19 00:02:37.900 --> 00:02:45.040 In the field of consumer goods, a doctor can sell his services, or a teacher his, for money, 20 00:02:45.040 --> 00:02:49.220 and then use the money to purchase goods that he demands. 21 00:02:49.220 --> 00:02:55.340 In production, a man can produce a capital good, sell it for money, and use the gold 22 00:02:55.340 --> 00:03:01.140 received to purchase the labor, land, and capital goods of a higher order needed for 23 00:03:01.140 --> 00:03:02.820 its production. 24 00:03:02.820 --> 00:03:09.820 He may use the surplus of money income over money outlay on factors to purchase consumers' 25 00:03:09.820 --> 00:03:11.460 goods for his own needs. 26 00:03:11.460 --> 00:03:18.940 Thus, at any stage in the production of any product, a man employs land and labor factors 27 00:03:18.940 --> 00:03:25.260 exchanging money for their services as well as for the needed capital goods and then sells 28 00:03:25.260 --> 00:03:30.820 the product for money to help in the next lower stage of production. 29 00:03:30.820 --> 00:03:37.340 This process continues until the final consumer's goods are sold to consumers. 30 00:03:37.340 --> 00:03:42.860 These consumers, on the other hand, obtain their money by purchasing it through the sale 31 00:03:42.860 --> 00:03:49.420 Selling of their own goods, either durable consumers' goods or services in production. 32 00:03:49.420 --> 00:03:55.700 The latter may include the sale of labor services, the sale of services of their land, the sale 33 00:03:55.700 --> 00:04:01.540 of their capital goods, or inheritance from those who had previously contributed such 34 00:04:01.540 --> 00:04:03.620 services. 35 00:04:03.620 --> 00:04:08.420 Later sections will deal further with the receipt of money income in the production 36 00:04:08.420 --> 00:04:09.420 process. 37 00:04:09.420 --> 00:04:19.420 Here it must be noted that since the owner and seller of capital goods must pay for the land, labor and capital goods in their production, 38 00:04:19.420 --> 00:04:29.420 in the last analysis the owner of capital receives income only as a holder of goods over a period of time. 39 00:04:29.420 --> 00:04:39.420 Thus nearly all exchanges are made against money, and money impresses its stamp upon the entire economic system. 40 00:04:39.420 --> 00:04:55.420 Producers of consumers' goods, as well as owners of durable consumers' goods, owners of capital goods, and sellers of labor services, all sell their goods against money, and purchase with money the factors that they need. 41 00:04:55.420 --> 00:05:02.420 They use their net money income to purchase consumers' goods produced by others in the society. 42 00:05:02.420 --> 00:05:14.420 Thus all individuals, in their capacity as producers and owners, supply goods, commodities and services, and demand money in exchange. 43 00:05:14.420 --> 00:05:21.420 And in their capacity as producers purchasing factors, as well as in their capacity as consumers, 44 00:05:21.420 --> 00:05:28.860 They supply money and demand an almost infinite variety of goods in exchange. 45 00:05:28.860 --> 00:05:35.940 The economy is therefore a money economy, and almost all goods are compared with and 46 00:05:35.940 --> 00:05:39.420 exchanged against the money commodity. 47 00:05:39.420 --> 00:05:45.660 This fact is of crucial importance to the analysis of any society beyond the most primitive 48 00:05:45.660 --> 00:05:46.740 level. 49 00:05:46.740 --> 00:05:53.580 We may sum up the complex pattern of exchanges in a money economy in the following way. 50 00:05:53.580 --> 00:06:01.700 Men in their capacity as producers sell consumers' goods, producers' goods, including labor, 51 00:06:01.700 --> 00:06:06.060 land, and capital goods, for money. 52 00:06:06.060 --> 00:06:13.700 Men in their capacity as producers buy producers' goods, including labor, land, and capital 53 00:06:13.700 --> 00:06:22.460 Financial Goods, with Money, Men in their Capacity as Consumers, Buy Consumers' Goods, 54 00:06:22.460 --> 00:06:23.260 with Money.