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ECON 1b EXCHANGE

I reserve the right to be wrong.



Last time we ploughed our mucky furrow through the meadow of production, so it seems fitting, actually necessary, to touch upon the town square of exchange also. Exchange, or trade, is the sibling of production as the other human action that creates economics.



DIRECT EXCHANGE / BARTER ECONOMICS

So to begin with people would trade one product for another product. As long as each of us has something the other wants, that's OK, but that situation is very unlikely to arise. In fact, most times I meet others, even if I'm careful and choose who I trade with so I know they have what I want, I can't be sure they'll want what I have. So let's introduce a medium of exchange that I can hand you in exchange for whatever I want from you!



MEDIUM OF EXCHANGE / MONEY ECONOMICS

A medium of exchange is pretty nifty. I'll go into that in more detail later. All that matters now is that, once trade consists of a medium passing from me to you, and a product from you to me, engaging in trade becomes easier and more predictable. And when it comes to trade, humans love predictability!

All consumption, as measured by macroeconomists, is trade / exchange.

We're in chicken and egg territory as to which of the two economic activities -production or trade- predates the other; I have no idea whatsoever. If you do, feel free to share your insights in the comments below.



On the next Ecomony Blogtime;

Matt wanders off into the wilderness to bring insights on the origin of species (of money).

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