EXCHANGE. — A fundamental phenomenon of social life and the specific object of economic science, which could even be defined as the “science of exchange”: or rather of contract, since every free exchange operation presupposes, whether tacit or explicit, a contract expressing the conviction of the contracting parties that the things exchanged have equivalent value for them at that moment. The greatest problem, therefore, of an economic science thus defined is the measurement of value, an indispensable premise for the concrete realization of commutative justice, and hence also of distributive justice.
I. EVOLUTION OF FORMS OF EXCHANGE
The evolution of the forms of exchange, from that in kind, or barter, to the monetary and then the credit form, marks the great stages of social evolution (v. PROGRESS). The law of exchange has developed in profound opposition to that governing production: while in production practical success is directly proportional to the forces employed, and output is linked to an increasing division and specialization of labour, in exchange the result appears inversely proportional to the number of those involved (merchants, intermediaries, shopkeepers, bureaucrats, etc.), and output, in terms of quality and low cost of services, seems to depend on the concentration of means, the coordination of services themselves, and the standardization of types and contracts (v. TYPE).This is essential in economic life, since through the anarchic swelling of the exchange mechanism, the growing cost of buying and selling largely neutralizes the benefits of industrial progress, which consist mainly in the continuous reduction of production costs: hence the paradox of the persistence of poverty and unrest in a world continually blessed by marvellous scientific and industrial achievements, which have made it capable of immense and most varied production.
II. THEORY OF MARKETS AND OTHER THEORIES
Dominating the phenomenon of exchange, whose practical manifestation is trade, is the famous theory of markets formulated by J. B. Say (v.) as early as 1806: products are exchanged, in the final analysis, for other products, so that each product will find buyers all the more easily the higher the production of all other products with which it is desired to exchange. But the increase of each production finds a limit in the fall of price, caused by the very increase in supply. The restrictive measures that form the rich patrimony of economic policies combat the fall in prices by reducing supply, i.e. production, and by hindering exchange in a thousand ways. They ignore the means of increasing, instead, all productions in parallel and proportionate fashion, by influencing the formation of capital and the territorial and qualitative distribution of investments.The solution of the problem requires central direction of the economy, and can be found only along two opposite paths: either such central direction is effectively established, identifying it with a political government, which will follow its particular criteria, translating them into programmed plans with which it intends to interpret the true needs and tastes of all individuals; or each individual is enabled to intervene in the market and to choose the best offer or the best demand there, thus indicating to producers, through the language of market prices, the productions to be increased, and setting the guidelines for an automatic economic government of production.
The first of these two paths is that of socialist-communism, centralized and authoritarian: the second is that of rational freedom and economic automatism. If, however, the latter does not find a way to be effectively implemented by solving the problem of the measurement of value and exhausting the totality of present supply and that possible in the future, it will leave open only the other path, apparently easier to follow (v. PRICE). The third ways, now in fashion, are nothing but transitory and ineffective attempts with which one tries, without hope, to delay a total identification of economic authority with political authority.
The rational solution is currently seen by some modern economic schools (v. HALLICISM), and by international politics itself in its desperate attempts at reconstruction and organization of the world, as a requirement for greater technical, organizational and unifying perfection of exchange and credit, and for the rapid elimination of obstacles to trade.
Despite the vicissitudes of a difficult economic life having suggested or imposed the expedient of regulated exchanges (v. PLANNING), the general intuition and the common aspiration of producers and merchants remains complete freedom of exchange. Not achievable by itself, without the preparation and support of decisive progress in economic technique in general and in monetary and credit technique in particular, with the consequent elimination of the risks of investment, immobilization and devaluation (v.), such freedom is the mirage towards which all economic forces tend: a confirmation that no political expedient can replace, in men’s trust, scientific and technical progress in the economy, and the power, speed and flexibility of free initiative, once it is relieved of the burden of ignorance and fear.
III. EXCHANGE, PRODUCTION AND CONSUMPTION
Economic science has hitherto given greater importance to production and paid less and insufficient attention to exchange. The infatuation with production, productivity and producers has not yet died out: wealth and well-being were made to depend solely on the productive potential of the nation. It was natural that the phenomena and necessities of exchange should remain in the shadows, and few, apart from practitioners, were concerned with the problems and laws of trade.It is now finally clear that well-being and wealth are measured by consumption (v.). Consumption is indeed fed by production, but if the mechanism of exchange is insufficient or comes to a halt, production too is forced to stop, and there is misery for all. It is well known, moreover, that easy exchange activates production, while exchange made difficult, costly or risky has the opposite effect.
Cash and credit commerce have achieved a notable, if not complete, technical-contractual perfection, equipped with a sufficient array of intermediary institutions, both contracting and insuring, at both the national and international levels. Capitalization commerce, on the other hand, despite its vital importance for the growth of the other two forms of commerce and for achieving economic equilibrium and national control over production and services, possesses a still primitive infrastructure compared to the now practical worldwide unification of the market. As a result, entrepreneurs and savers remain distant and estranged, or completely unaware of one another, gravely hindering the necessary transformation of part of annual production into new productive capital. It is precisely the growth of this form of commerce that should and could ensure the total sale of current labor products at remunerative prices.
The solution to this problem can only be of a contractual nature; and the continuous and increasing interventions of economic policy—not all necessary and not always covert—as well as planned economies, dirigisme, and third forces, only serve to divert intelligence and activity from a rational solution, delaying that natural process of contractual unification which has been developing for centuries but is now progressing far too slowly in relation to the rapid pace of global events and economic evolution.