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1. The Limitations of Direct Exchange

We have seen in the previous chapter how exchange benefits each participant and how the division of labor on a market increases productivity. The only exchange so far discussed, however, has been direct exchange, or barter-the exchange of one useful good for another, each for purposes of direct use by the party to the exchange. Although a treatment of direct exchange is important for economic analysis, the scope for direct exchange in society is extremely limited. In a very primitive society, for example, Crusoe could employ Jackson to labor on his farm in exchange for a part of the farm produce. There could, however, be no advanced system of production in a direct-exchange society and no accumulation of capital in higher stages of production-indeed no production at all beyond the most primitive level. Thus, suppose that A is a house-builder; he builds a house on contract and employs masons, carpenters, etc. In a regime of direct exchange, how would it be possible to pay these men? He could not give pieces of the house to each of the laborers. He would have to try to sell the house for precisely that combination of useful goods that each of the laborers and each of the sellers of raw material would accept. It is obvious that production could not be carried on and that the difficulties would be insuperable.

This problem of the lack of "coincidence of wants" holds even for the simple, direct exchange of consumers' goods, in addition to the insoluble problem of production. Thus, suppose that A, with a supply of eggs for sale, wants a pair of shoes in exchange. B has shoes but does not want eggs; there is no way for the two to get together. For anyone to sell the simplest commodity, he must find not only one who wants to purchase it, but one who has a commodity for sale that he wants to acquire. The market for anyone's commodities is therefore extremely limited, the extent of the market for any product is very small, and the scope for division of labor is negligible. Furthermore, someone with a less divisible commodity, such as a plow, is in worse straits. Suppose that D, with a plow, would like to exchange it for eggs, butter, shoes, and various other commodities. Obviously, he can­not divide his plow into several pieces and then exchange the various pieces for eggs, butter, etc. The value of each piece to the others would be practically nil. Under a system of direct ex­change, a plow would have almost no marketability in exchange, and few if any would be produced.

In addition to all these difficulties, which render a regime of direct exchange practically impossible, such a society could not solve the various problems of estimation, which (as was seen in chapter 1) even Crusoe had to face.[1] Since there would be no common denominator of units, there could be no way of estimating which line of production various factors should enter. Is it better to produce automobiles or tractors or houses or steel? Is it more productive to employ fewer men and more land on a certain product or less land and more men? Is the capital struc­ture being maintained or consumed? None of these questions could be answered, since, in the stages beyond immediate con­sumption, there would be no way of comparing the usefulness or the productivity of the different factors or products.

The conclusion is evident that no sort of civilized society can be built on the basis of direct exchange and that direct exchange, as well as Crusoe-like isolation, could yield only an economy of the most primitive type.[2]

2. The Emergence of Indirect Exchange

The tremendous difficulties of direct exchange can be over­come only by indirect exchange, where an individual buys a com­modity in exchange, not as a consumers' good for the direct satis­faction of his wants or for the production of a consumers' good, but simply to exchange again for another commodity that he does desire for consumption or for production. Offhand, this might seem a clumsy and round­about operation. Actually, it is indispensable for any economy above the barely primitive level.

Let us return, for example, to the case of A, with a supply of eggs, who wants a pair of shoes in exchange. B, the shoemaker, has shoes for sale but does not desire any more eggs than he has in stock. A cannot acquire shoes by means of direct exchange. If A wants to purchase a pair of shoes, he must find out what commodity B does want in exchange, and procure it. If A finds that B wants to acquire butter, A may exchange his eggs for the butter of C and then exchange this butter for B's shoes. In this case, butter has been used as a medium of indirect exchange. The butter was worth more to A than the eggs (say the exchange was 10 dozen eggs for 10 pounds of butter, then for one pair of shoes), not because he wanted to consume the butter or to use the butter to produce some other good in a later stage of production, but because the butter greatly facilitated his obtain­ing the shoes in exchange. Thus, for A, the butter was more marketable than his eggs and was worth purchasing because of its superior marketability. The pattern of the exchange is shown in Figure 30.

Or consider the enormous benefit that D, the owner of a plow, acquires by using a medium of exchange. D, who would like to acquire many commodities but finds that his plow has a very limited marketability, can sell it in exchange for quantities of a more marketable commodity, e.g., butter. Butter, for one thing, is more marketable because, unlike the plow, its nature is such that it does not lose its complete value when divided into smaller pieces. D now uses the butter as a medium of indirect exchange to obtain the various commodities that he desires to consume.

Just as it is fundamental to human experience that there is great variety in resources, goods desired, and human skills, so is there great variety in the marketability of various commodities. Tending to increase the marketability of a commodity are its de­mand for use by more people, its divisibility into small units without loss of value, its durability, and its transportability over large distances. It is evident that people can vastly increase the extent of the market for their own products and goods by ex­changing them for more marketable commodities and using the latter as media to exchange for goods that they desire. Thus, the pattern of D's, the plow-producer's, exchanges will be as shown in Figure 31.

D first exchanges his plow for X1's butter, and then uses the butter to exchange for the various goods that he desires to use, with X2 for eggs, X3 for shoes, X4for horses, etc.

As the more marketable commodities in any society begin to be picked by individuals as media of exchange, their choices will quickly focus on the few most marketable commodities available. If D saw, for example, that eggs were a more marketable com­modity than butter, he would exchange his plow for eggs instead and use them as his medium in other exchanges. It is evident that, as the individuals center on a few selected commodities as the media of exchange, the demand for these commodities on the market greatly increases. For commodities, in so far as they are used as media, have an additional component in the demand for them-not only the demand for their direct use, but also a de­mand for their use as a medium of indirect exchange. This de­mand for their use as a medium is superimposed on the demand for their direct use, and this increase in the composite demand for the selected media greatly increases their marketability. Thus, if butter begins as one of the most marketable commodities and is therefore more and more chosen as a medium, this increase in the market demand for butter greatly increases the very market­ability that makes it useful as a medium in the first place. The process is cumulative, with the most marketable commodities becoming enormously more marketable and with this increase spurring their use as media of exchange. The process continues, with an ever-widening gap between the marketability of the medium and the other commodities, until finally one or two commodities are far more marketable than any others and are in general use as media of exchange.[3]

Economic analysis is not concerned about which commodities are chosen as media of exchange. That is subject matter for eco­nomic history. The economic analysis of indirect exchange holds true regardless of the type of commodity used as a medium in any particular community. Historically, many different commodities have been in common use as media. The people in each community tended to choose the most marketable com­modity available: tobacco in colonial Virginia, sugar in the West Indies, salt in Abyssinia, cattle in ancient Greece, nails in Scot­land, copper in ancient Egypt, and many others, including beads, tea, cowrie shells, and fishhooks.[4]Through the centuries, gold and silver (specie) have gradually evolved as the commodities most widely used as media of exchange. Among the factors in their high marketability have been their great demand as ornaments, their scarcity in relation to other commodities, their ready divisi­bility, and their great durability. In the last few hundred years their marketable qualities have led to their general adoption as media throughout the world.

A commodity that comes into general use as a medium of ex­change is defined as being a money. It is evident that, whereas the concept of a "medium of exchange" is a precise one, and indirect exchange can be distinctly separated from direct ex­change, the concept of "money" is a less precise one. The point at which a medium of exchange comes into "common" or "gen­eral" use is not strictly definable, and whether or not a medium is a money can be decided only by historical inquiry and the judgment of the historian. However, for purposes of simplifica­tion, and since we have seen that there is a great impetus on the market for a medium of exchange to become money, we shall henceforth refer to all media of exchange as moneys.


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, e.g., 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. 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.[5] It is evident that 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 consumers' 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 consumers' goods are sold to consumers. These consumers, on the other hand, obtain their money by purchasing it through the sale 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.[6]

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:


4. The Monetary Unit

We have seen that every good is "in supply" if it can be divided into units, each of which is homogeneous with every other. Goods can be bought and sold only in terms of such units, and those goods which are indivisible and unique may be de­scribed as being in a supply of one unit only. Tangible com­modities are generally traded in terms of units of weight, such as tons, pounds, ounces, grains, grams, etc. The money commodity is no exception to this rule. The most universally traded com­modity in the community, it is bought and sold always in terms of units of its weight. It is characteristic of units of weight, as of other metrical scales, that each unit is convertible into every other. Thus, one pound equals 16 ounces; and one ounce equals 437.5 grains, or 28.35 grams. Therefore, if Jones sells his tractor for 15 pounds of gold, he may also be described as having sold the tractor for 240 ounces of gold, or for 6,804 grams of gold, etc.

It is clear that the size of the unit of the money commodity chosen for any transaction is irrelevant for economic analysis and is purely a matter of convenience for the various parties. All the units will be units of weight, and they will be convertible into pounds, ounces, etc., by multiplying or dividing by some con­stant number, and therefore all will be convertible into one an­other in the same manner. Thus, one pound of gold will equal 16 ounces and will, of course, exchange for 16 ounces, should such an exchange be desired on the market. The economic irrele­vance of the names or sizes of the units may be seen from the following example. Suppose that the residents of Texas use, in their exchanges, a unit known as the Houston, equalling 20 grains of gold, while the residents of Massachusetts use the Adams, equalling 10 grains. The citizens of the respective areas may make their exchanges and calculations in these terms, e.g., Jones sells his car for "2,000 Houstons of gold," or, more simply, "2,000 Houstons," or Jones might consider the money price of eggs as being "Houston per dozen." On the other hand, Smith might buy a house for "10,000 Adamses." It is obvious that the use of the different names will complicate matters, but it is economically insignificant. The "Houston" is still a unit of weight of gold, and is a shorthand name for "20 grains of gold." It is clear that, on the market, one Houston will exchange for two Adamses.[7]

To avoid unnecessary complications and to clarify the analysis, therefore, the names of the monetary units in this work will be in terms of universally acceptable units of weight (such as ounces, grams, etc.) rather than in terms of accidental names of only local significance (such as dollars or francs).

Obviously, the more valuable the units of a commodity are, the smaller the size of the units used in daily transactions; thus, platinum will be traded in terms of ounces, while iron is traded in terms of tons. Relatively valuable money commodities like gold and silver will tend to be traded in terms of smaller units of weight. Here again, this fact has no particular economic signifi­cance.

The form in which a unit weight of any commodity is traded depends on its usefulness for any specific, desired purpose. Thus, iron may be sold in the form of bars or chunks, cheese in rectangu­lar or triangular shape, etc. Whereas other commodities will be traded in those forms suitable for production or consumption, money will be traded in forms suitable for exchange or storing until an exchange is made. Historically, the shapes of money have been innumerable.[8] In recent centuries large bars of gold or silver have been used for storage or for exchange in larger transactions, while smaller, circular pieces, known as coins, are used for smaller transactions.


5. Money Income and Money Expenditures

In a money economy, each individual sells goods and services that he owns for money and uses the money to buy desired goods. Each person may make a record of such monetary exchanges for any period of time. Such a record may be called his balance of payments for that period.

One record may be the transactions of goods sold for money in a certain period to other individuals. Suppose, for example, that Mr. Brown draws up the record of goods sold for money for the month of September, 1961. Suppose that he has sold his services as a carpenter to a Mr. Jones in building the latter's house and has sold his services as a handyman to Messrs. Jones and Smith during the same period. Also, he has disposed of an old radio to Mr. Johnson. His account of money received, i.e., money purchased for goods and services sold, is as follows:

From the account, we know that by his sales of goods and services during this period, Brown has purchased 26 ounces of gold. This total of money purchased is his total of money income for that period.

It is clear that the more money income a man receives during any period, the more money he will be able to spend on desired goods. Other things being equal (an important qualification that will be examined in later sections), he will strive to earn as much money income in any prospective period as he can.

Mr. Brown acquired his income by selling his labor services and a durable consumers' good. There are other ways of acquiring money income on an unhampered market. The owner of land may sell it for agricultural, locational, industrial, as well as other, purposes. The owner of capital goods may sell them to those interested in using them as factors of production. Tangible land and capital goods may be sold for money outright, or the owner may retain ownership of the good while selling ownership of its services over a certain period of time. Since any good is bought only for the services that it can bestow, there is no reason why a certain period of service of a good may not be purchased. This can be done, of course, only where it is technically possible. Thus, the owner of a plot of land or a sewing machine or a house may "rent it out" for a certain period of time in exchange for money. While such hire may leave legal ownership of the good in the hands of the "landlord," the actual owner of the good's service for that period is the renter, or "tenant." At the end of the hire period, the good is returned to the original owner, who may use or sell the remainder of the services.

In addition to the sale of goods and services, a man may receive money as a gift. He does not purchase the money he receives in gifts. His money income for any period equals his money pur­chased, plus the money he receives in gifts. (One common form of receipt of a gift is an inheritance, the result of a bequest at death.)

Thus, Mr. Green's account of money income for June to De­cember, 1961, may be as follows:


As was seen in the previous chapter, in order first to acquire the good or service that a man can sell for money, he must first either produce it himself or buy it from someone who has pro­duced it (or who, in turn, has bought it from the original pro­ducer). If he has been given money, the original owner must have acquired it through producing a good, etc. Thus, in the last analysis, the first seller of a capital good or a durable consumers' good is the original producer, and later purchasers must have produced some service of their own in order to obtain the money to acquire it. The seller of labor service, of course, pro­duces the service directly at the time. The seller of pure land must originally have appropriated unused land which he had found and transformed. On the unhampered market of a money economy, producers of commodities and services sell their goods for the money commodity, then use the money acquired to buy other desired goods.

Money is acquired in this way by all except the producers of the original gold on the market-those who mined and marketed it. However, the production of the money commodity, as with all other valuable commodities, itself requires the use of land, labor, and capital goods, and these must be paid for by the use of money. The gold miner, then, receives no money by gift, but must actively find and produce gold to acquire his money.

With the use of money acquired in these various ways, indi­viduals purchase desired goods. They do so in two capacities: as consumers and as producers. As consumers, they purchase consumers' goods that they desire; in the case of durable goods, they may purchase the entire good, or they may hire the services of goods for some specified period of time. As producers, they use money to purchase the services of factors of production needed to produce consumers' goods or lower-order capital goods. Some factors they may purchase outright, to use all their anticipated future services; some they may hire for their services for a speci­fied period of time. Thus, they may purchase capital goods that function as "raw material"; they may purchase some capital goods called "machines" and hire others; or they may hire or purchase the land that they need to work on. In general, just as consumers cannot very well hire short-lived, nondurable goods, so producers cannot very well hire capital goods, dubbed "raw material" or "inventory," that are used up quickly in the process of production. On a free market, they cannot purchase labor services outright, as was explained in the preceding chapter. Since man's personal will is inalienable, he cannot, in a voluntary society, be compelled to work for another against his present will, and therefore no con­tracts can be made for purchase of his future will. Labor services, therefore, can only be bought for "hire," on a "pay-as-you-go" basis.

Any individual may draw up an account of his purchases of other goods with money for any period of time. The total amount of money given up in such exchanges is his money expenditures or money outlays for that period. Here it must be noted that his expenditure account, as well as his income account, can be item­ized for each transaction or may be grouped into various classes. Thus, in Brown's account above, he might have tabulated his in­come as 25 ounces from labor in general, and one ounce from his radio. How broad or narrow the classes are depends purely on the convenience of the person drawing up the account. The total, of course, is always unaffected by the type of classification chosen.

Just as money income equaled money purchased for goods and services sold plus money received as gifts, so money expendi­ture equals money sold for goods and services bought plus money given away as gifts. Thus, Mr. Brown's money expenditure ac­count for September, 1961, might be the following:


In this account, Brown is spending money purely as a con­sumer, and his total money expenditures for the period are 24 ounces. If he had desired it, he could have subdivided the ac­count further into such items as apples, 1/5 ounce; hat, one ounce; etc.

Here it may be noted that an individual's total money income for any period may be termed his exports, and the goods sold may be termed the "goods exported"; on the other hand, his total money expenditure may be termed his imports, and the goods and services bought are the "goods imported." These terms apply to goods purchased by producers or consumers.

Now, let us observe and compare Mr. Brown's income and expenditure accounts for September, 1961. Brown's total money income was 26 ounces of gold, his money expenditures 24 ounces. This must mean that two ounces of the 26 earned in this period remained unspent. These two ounces remain in the possession of Mr. Brown, and are therefore added to whatever previous stock of gold Brown might have possessed. If Brown's stock of money on September 1, 1961, was six ounces of gold, his stock of money on October 1, 1961, is eight ounces of gold. The stock of money owned by any person at any point in time is called his cash holding or cash balance at that time. The two ounces of income remaining unspent on goods and services constituted a net addition to Brown's cash balance over the month of September. For any period, therefore, a person's money income is equal to his money outlay plus his addition to cash balance.

If we subdivide this income-expenditure account into smaller periods of time, the picture of what is happening to the cash bal­ance within the larger period is likely to be far different from a simple addition of two ounces. Thus, suppose that all of Brown's money income came in two chunks on the first and fifteenth of September, while his expenditures occurred every day in vary­ing amounts. As a result, his cash balance rose drastically on Sep­tember 1, say to six plus 13 or a total of 19 ounces. Then, the cash balance was gradually drawn down each day until it equaled six again on the 15th; then it rose sharply again to 19, finally being reduced to eight at the month's end.

The pattern of Brown's supplies and demands on the market is clear. Brown supplied various goods and services on the market and demanded money in exchange. With this money income, he demanded various goods and services on the market and supplied money in exchange. The money must go into the cash balance before it can be spent on goods and services.[9]

Suppose, on the other hand, that Brown's expenditures for September had been 29 ounces instead of 24 ounces. This was accomplished by drawing down Brown's previous cash balance by three ounces and leaving him with three ounces in his cash holding. In this case, his money expenditures for the period equaled his money income plus the decrease in his cash balance. In sum, the following formula always holds true for any individual over any period of time:

Money Income = Money Expenditures + Net Additions to
Cash Balance - Net Subtractions from Cash Balance

Alternatively, the term Exports can be substituted for Income, and Imports for Expenditures, in the above equation.

Let us assume for purposes of simplification that the total stock of the money commodity in the community has remained unchanged over the period. (This is not an unrealistic assump­tion, since newly mined gold is small compared to the existing stock.) Now it is obvious that, like all valuable property, all money must, at any point in time, be owned by someone. At any point in time, the sum of the cash holdings of all individuals is equal to the total stock of money in the community. Thus, if we consider Brown among a group of five persons living in a village, and their respective cash balances on September 1 were: 6, 8, 3, 12, and 5 ounces, then the total stock of money held in the village on that date was 34 ounces. If the data were available, the same sort of summation could be performed for the world as a whole, and the total stock of money discovered. Now it is ob­vious that Brown's addition of two ounces to his cash balance for September must have been counterbalanced by a subtraction of two ounces from the cash balances of one or more other individuals. Since the stock of money has not changed, Brown's addition to his cash balance must have been acquired by drawing down the cash balances of other individuals. Similarly, if Brown had drawn down his cash balance by three ounces, this must have been counter­balanced by the addition of three ounces to the cash balance of one or more individuals.

It is important to recognize that the additions to, or subtrac­tions from, a cash balance are all voluntary acts on the part of the individuals concerned. In each period, some individuals decide to add to their cash balances, and others decide to reduce them, and each makes that decision which he believes will benefit him most.[10] For centuries, however, fallacious popular usage has as­serted that one whose income is greater than expenditures (ex­ports greater than imports) has a "favorable balance of trade," while one whose expenditures have been greater than income for a period (imports greater than exports) has suffered an "un­favorable balance of trade." Such a view implies that the active, important part of the balance of payments is the "trade" part, the exports and imports, and that the changes in the individual's cash balance are simply passive "balancing factors," serving to keep the total payments always in balance. In other words, it as­sumes that the individual spends as much as he wants to on goods and services and that the addition or subtraction from his cash balance appears as an afterthought. On the contrary, changes in cash balance are actively decided upon by each individual in the course of his market actions. Thus, Brown decided to increase his cash balance by two ounces and sold his labor services to ob­tain the money, forgoing purchases of consumers' goods to the extent of two ounces. Conversely, in the later example, when he spent three ounces more than he earned in the month, he decided that his cash balance had been excessive and that he would rather spend some of it on consumers' goods and services. There is therefore never a need for anyone to worry about anyone else's balance of payments. A person's "unfavorable" balance of trade will continue so long as the individual wishes to reduce his cash balance (and others are willing to purchase his money for goods). His maximum limit is, of course, the point when his cash balance is reduced to zero. Most likely, however, he will stop reducing his cash balance long before this point.[11]


[1]See, for example, chapter 1 above, pp. 57-58.

[2]For a vivid and accurate contrast between man's condition in a market society and that in a primitive society, see About, Handbook of Social Economy, pp. 5-17.

[3]For further analysis of this process of the emergence of common media, see Mises, Theory of Money and Credit, pp. 30-33, and Human Action, pp. 402-04. Also see Menger, Principles of Economics, pp. 257-63. For an historical description, see J. Laurence Laughlin, A New Exposition of Money, Credit, and Prices (Chicago: University of Chicago Press, 1931), I, 3-15, 28-31.

[4]Cf. Adam Smith, The Wealth of Nations (New York: Modern Library, 1937), pp. 22-24; Menger, Principles of Economics, pp. 263-71; and Laughlin, A New Exposition of Money, Credit, and Prices, pp. 15­-23, 38-43.

[5]On the significance of money for civilized society, cf. Wicksteed, Common Sense of Political Economy, I, 140ff.

[6]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.

[7]The names of the units can be, and have been, anything conceivable, depending on custom, language, etc. Such names as dollars, francs, marks, shekels, are examples. The "dollar" originated as the generally applied name of ounce weights of silver coined by the Count of Schlick in Bohemia. The Count, who lived in Joachim's Valley (or Joachimsthal) began coining ounces of silver in 1518, and their uniformity and fine­ness earned a reputation throughout Europe. They became known as Joachimsthalers, finally abbreviated to thalers. The name "dollar" is derived from "thaler." Cf. Charles A. Conant, The Principles of Money and Banking (New York: Harper & Bros., 1905), I, 135-40; Menger, Principles of Economics, p. 283.

[8] Gold, for example, has been traded as money in the raw form of nuggets, as gold dust in sacks, or as jewelry and other ornaments. One interesting example of a money shape was the iron money of central Africa. Iron was a valuable commodity, in use as hoes. The money form was made to be divisible into two parts, easily shaped into hoes. See Laughlin, A New Exposition of Money, Credit, and Prices, p. 40.

[9]This is also true if the income is gradual and the expenditure is in discrete sums, or for any other pattern of money income and expendi­tures.

[10]This section is limited to a discussion of expenditures on consumers' goods. A later section will discuss producers' expenditures on producers' goods. It will be seen, however, that even unwelcome losses from cash balances suffered by producers are purely the result of voluntary action that, in a later period, proved erroneous.

[11]The assertion has also been made that a person who spends most or all of his income on food and clothing must also have an "unfavorable ba­lance of trade," since his money expenditures must be at a certain mini­mum amount. However, if the man has spent all his cash balance, he can no longer continue to have an "unfavorable balance," regardless of what goods he buys or what his standard of living is.

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