chapter  5
14 Pages

The exchange in kind versus the exchange against a medium

Introduction The concepts of exchange in kind and barter exchange are often used interchangeably. In Chapter 5 we shall explore the similarities and the differences between these two explanations of the origin of money. The focal point of our analysis here, however, will be on the idea of exchange in kind. We shall go over the key characteristics of this type of exchange economy as they are described by the proponent of this theory. The exchange in kind economy is characterized as a moneyless economy. Goods are exchanged against one another as in barter exchange so the economy lacks a medium of exchange. As there is not a medium of exchange, transactions of goods will come to a deadend eventually. That is due to the lack of coincidence of wants. The transformation of the economy from an exchange in kind to a money economy is completed with the advent of a generally accepted medium of exchange. By virtue of this fact then the origin of money is associated with the collapse of the exchange in kind economic system. It has already been mentioned that an exchange in kind is said to be a moneyless economy. The core component of this assertion is the term exchange. For an economic act of exchange to occur a set of economic, social and legal requirements are needed. Otherwise the exchange would not take place. The first and foremost necessary condition for that to happen is the development of division of labour and specialization of employment to an adequate stage whereby the products produced will be more than what is required for self-consumption. The second necessary qualification, of course, is production of surplus product itself. This is a matter of great practical importance for the reason that in the absence of any surplus product there would not be any exchange taking place. Complementary to all those qualifications are the conditions of having two counterparties who have in their disposal surplus products of dissimilar goods that are above their consumption. Even having different goods would not be a sufficient reason for the counterparties if the goods do not fulfil their needs. The exchange cannot go ahead except when they find themselves in need of each other’s surplus product. This act of exchange is designated as exchange in kind (Say 1971: 218).