Equation of exchange

“ And he ignores it in filling out his equation statistically, for he assigns one set of weights to the particular prices in his P throughout. [148]
The causal theory with which the equation of exchange is associated is as follows: P is passive. A change in the equation cannot be initiated by P. If P should change without a prior change in one of the other factors, forces would be set in operation which would force it back to its original magnitude. M and T are independent magnitudes. A change in one does not occasion a change in the other. ”

“ The value of our analysis consists rather in simplifying the problem by setting forth clearly the five proximate causes through which all others whatsoever must operate. At the close of our study, as at the beginning, stands forth the equation of exchange as the great determinant of the purchasing power of money. ”

“ Linen thus becomes the universal equivalent through the universal action of all other commodities upon it. As exchange value, every commodity served as a measure of value of all other commodities. Now, on the contrary, since all commodities measure their exchange values by means of a particular commodity, this excluded commodity becomes the special expression of exchange value, as a universal equivalent. At the same time, the endless series of equations in which the exchange value of every commodity was expressed, is reduced to one single equation consisting of two members. ”

“ Hence it comes to pass, that the exchangeable value of every commodity is more frequently estimated by the quantity of money, than by the quantity either of labor or of any other commodity which can be had in exchange for it. ”

“ But to proceed, on the basis of this relationship between the purchasing power of a currency and its exchange value, to argue that at any given time the exchange is more or less an exact measure of general purchasing power of the two currencies, is to assume what cannot always be true, namely, that the prices of traded and non-traded goods move in sympathy. ”

“ To enable the money price of a thing at two different periods to measure the quantity of things in general which it will exchange for, the same sum of money must correspond at both periods to the same quantity of things in general, that is, money must always have the same exchange value, the same general purchasing power. ”

“ One may well doubt if the function of a means of payment can be distinguished from that of a medium of exchange. At least, most writers seem to agree that the medium-of-exchange function is essential to money; but if the standard function be neglected, could we possibly define that which acts only as a medium of exchange as true money? ”

“ To say that goods command a price because they have power in exchange is like saying that opium puts men to sleep because it has a dormitive power. Physicians now recognize that this is no solution of difficulties, that it is merely a repetition of the problem in other words. If we wish to explain exchange, we must seek the explanation in something anterior to exchange. If value is to be distinguished from ratio of exchange at all, it cannot be defined as "power in exchange." ”

“ If buying and selling are what count, if prices are forced up by the offer of money or credit for goods, and forced down as the amount of money and credit offered for goods is reduced, then one exchange must count for as much as any other of like magnitude in fixing prices. ”

“ The idea of general exchange value originates in the fact, that there really are causes which tend to alter the value of a thing in exchange for things generally, that is, for all things which are not themselves acted upon by causes of similar tendency.
In considering exchange value scientifically, it is expedient to abstract from it all causes except those which originate in the very commodity under consideration. Those which originate in the commodities with which we compare it, affect its value in relation to those commodities ”

“ In a general way, it may be pointed out, the sources of demand for exchange conform with influences which cause exchange to go up, and the sources of supply of exchange constitute causes which make for low rates. ”

“ This is the first and most elementary phase in which the Foreign Exchanges can appear; and for the purpose of appreciating the most important lessons which can be derived from their study, it is better to discard the idea of the exchange taken place between different sorts of money, and to hold fast to the general principle that what is really given in exchange in the natural and simple transactions from which all others are derived, is a sum of money at one place for an equivalent sum of money at another. ”

“ So enormous did the evil grow, and so pervasive were its effects, that it absorbed all attention to the exclusion of everything else. What fixity of value between the different units of its currency is to the internal transactions of a country, a par of exchange is to its external transactions. A par of exchange between any two countries expresses the relative exchange values of their respective currencies in terms of each other. ”

“ In cases where prices, or exchange relations, are not in accord with values, the term "ratio of exchange" is inapplicable, since there are no quantities to be terms of the ratio—except the pure abstract numbers of the commodities, each measured in its own unit, exchanged. ”

“ On the one hand, the exchange-value of these means of production is not increased ; for the exchange value of a commodity is not raised by its use-value being consumed more thoroughly and to greater advantage. ”

“ Other things being equal, this should always be the par rate of exchange between the United States and England. The question of the rate of exchange between countries which have a gold standard is a comparatively simple matter. ”

“ The first use of money is to effect exchanges, and as a vast bulk of exchanges, are affected without money, should not this be deducted from the bulk of exchange before a normal amount of money can be considered? ”

“ The power of a commodity in exchange is measured in money, and the amount of money for which a commodity will exchange is called its price. Price is thus a measure, in terms of money, of the value of a commodity. ”

“ It is concerned only with the relations between commodities, nowhere with those between men. There is no definition under which we may combine both conceptions of value, the subjective and the objective. We must be content with showing their mutual relation.
In economy both find application. Every decision arrived at by any one respecting a commodity is based upon his subjective judgment of value. Price and exchange-value on the other hand furnish the general principles of exchange and of the calculus of production. ”

“ The whole of the goods of a country are not exchanged at once against the whole of the money; the goods are exchanged in portions, often in very small portions, and at different times, during the course of the whole year. The same piece of money which is paid in one exchange to-day, may be paid in another exchange tomorrow. ”

“ Then, the dollar will represent constant value, and will thus become the true medium of exchange—domestic exchange. The difference between exchange and redemption is, in exchange gold is supplied at the market price, and in redemption it is supplied at a given price. When, however, the given price equals the market price, there is little redemption, because there is little demand ”

“ I have just said the breadth of sea increases the cost of exchange. Now note that exchange, or commerce, in itself, is always costly; the sum of the value of the goods being diminished by the cost of their conveyance, and by the maintenance of the persons employed in it ”

“ It seems to be quite necessary indeed that the commodity chosen for a medium of exchange should, in addition to the other qualities which may fit it for that purpose, be in such frequent use that the estimation in which it was held, founded on the desire to possess it, and the difficulty of obtaining it, should be tolerably well established. ”

“ In speaking of the exchange and the comparative value of money in different countries, we must not in the least refer to the value of money estimated in commodities, in either country. The exchange is never ascertained by estimating the comparative value of money in corn, cloth, or any commodity whatever, but by estimating the value of the currency of one country, in the currency of another. ”

“ When all the accounts of one country correspond in value with those of another, so that there is an even balance, the exchange between the countries will be at par, that is, the sum for which the bill is drawn in the one country will be the exact value of it in the other. ”

“ Labor itself has exchange value, and different kinds of labor have different exchange values. We get into a vicious circle by making exchange value the measure of exchange value, because the measuring exchange value needs a measure itself. ”