3. Some Implications of the Emergence of Money
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.
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.
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.
The steel producers can exchange the gold partly for labor, partly for iron, partly for machines, etc.
etc. Then the various laborers, landowners, etc. who receive the gold in the production
process can use it as a medium to purchase eggs, automobiles or clothing as they desire.
The whole pattern of a modern society is thus built on the use of money and the enormous
importance of the use of money will become clearer as the analysis continues. It is evident
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.
On the contrary, the analysis of direct exchange is useful only as an introductory aid to the analysis of a society of indirect exchange.
Direct exchange would leave very little scope for the market or for production.
With the great variety in human skills and natural resources resulting in enormous advantages from the division of labor,
The existence of money permits the splitting of production into minute branches, each man
selling his product for money and using money to buy the products that he desires.
In the field of consumer goods, a doctor can sell his services, or a teacher his, for money,
and then use the money to purchase goods that he demands.
In production, a man can produce a capital good, sell it for money, and use the gold
received to purchase the labor, land, and capital goods of a higher order needed for
its production.
He may use the surplus of money income over money outlay on factors to purchase consumers'
goods for his own needs.
Thus, at any stage in the production of any product, a man employs land and labor factors
exchanging money for their services as well as for the needed capital goods and then sells
the product for money to help in the next lower stage of production.
This process continues until the final consumer's goods are sold to consumers.
These consumers, on the other hand, obtain their money by purchasing it through the sale
Selling of their own goods, either durable consumers' goods or services in production.
The latter may include the sale of labor services, the sale of services of their land, the sale
of their capital goods, or inheritance from those who had previously contributed such
services.
Later sections will deal further with the receipt of money income in the production
process.
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,
in the last analysis the owner of capital receives income only as a holder of goods over a period of time.
Thus nearly all exchanges are made against money, and money impresses its stamp upon the entire economic system.
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.
They use their net money income to purchase consumers' goods produced by others in the society.
Thus all individuals, in their capacity as producers and owners, supply goods, commodities and services, and demand money in exchange.
And in their capacity as producers purchasing factors, as well as in their capacity as consumers,
They supply money and demand an almost infinite variety of goods in exchange.
The economy is therefore a money economy, and almost all goods are compared with and
exchanged against the money commodity.
This fact is of crucial importance to the analysis of any society beyond the most primitive
level.
We may sum up the complex pattern of exchanges in a money economy in the following way.
Men in their capacity as producers sell consumers' goods, producers' goods, including labor,
land, and capital goods, for money.
Men in their capacity as producers buy producers' goods, including labor, land, and capital
Financial Goods, with Money, Men in their Capacity as Consumers, Buy Consumers' Goods,
with Money.