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Exchange As A Social Function

( Originally Published 1915 )

Social Importance of Exchange. — In the short run contact may mean conflict. Ultimately, however, contact leads to acquaintance, which is the first step towards tolerance and co-operation. Anything, therefore, which increases the number of human contacts in the long run increases sociability and friendliness. This is especially true of contacts which have for their avowed purpose the advantage of each person. Exchange between different individuals in the same group and between different groups is carried on because all concerned believe that the exchange of articles is mutually of advantage. The primitive social motives are here supplemented by the economic.

Moreover, an important phase of wealth production, of far-reaching social consequences, is the exchange of commodities. The method of exchange is an indication of the stage of social development reached by a society. It is the beginning of a division of labor and is a means of the creation of wealth. In an exchange each party concerned gets something which he values more highly than that which he exchanged for it. For example, when I exchange an arrowhead for a moccasin, it is because I value the latter more highly than the former. He with whom I made the exchange evidently valued the arrow-head more highly than the moccasin, else he would not have parted with the latter for my arrowhead. Both of us are benefited by the exchange. Beginning in a small way, in the form of barter, exchange has expanded with the growth of industry to the present credit system. Its formal beginning was in the trading of surplus goods of a given kind for more desirable goods of another kind or, as it has been stated, " the exchanging of the relatively superfluous for the relatively necessary." In primitive society different articles of food, of wearing apparel, and of implements were bartered. This method continued with all property until money was invented as a medium of exchange.

Social Effects of Exchange. — What concerns us most here are the social effects of exchange, for primarily it permits diversified industries. It allows each individual to follow a given occupation or to engage in the creation of a single commodity. Thus, a farmer can spend his energy in raising wheat, and, after saving enough of the product to supply his own needs, may ex-change the rest for other kinds of food, clothing, implements, and furniture. He does this in modern times by the use of money, that is, he sells the wheat and with the money obtained from it he buys the other necessary articles. This permits him to follow a single pursuit with efficiency.

But exchange has a greater social function, — that of the development of social intercourse between individuals, groups, territories, and nations. This intercourse has much to do with the socialization of groups. It brings diversified food, adding many articles to the food supply and thus it increases the power to support life. Intercourse adds likewise to variety of clothing, making all means of protection and adornment of the body supplied by nature and art available to each community. This conduces to the comfort of the race and contributes another element of emulation between individuals. Moreover, exchange permits adaptability of different clothing to requirements of occupation and climate, thus increasing man's working capacity. Arts such as primitive methods of working stone and metals are thus disseminated throughout wide areas. For example, through barter between Indian tribes in America Lake Superior copper articles were found as far south as Florida and pipes made from the pipestone of southwestern Minnesota are found scattered throughout the Mississippi Valley.

Still more important, though less observable, is exchange of ideas, which always follows exchange of material things. Commerce has always been a great stimulus to intellectual development. Ideas of social life and education are easily transferred from community to community and from nation to nation through the interchange of goods. The thoroughfares of commerce have always been highways of learning and courses of intellectual development and means of distributing inventions to the world. The caravans of the Orient brought ideas of culture from the East and disseminated them wherever their lines of travel passed. The Phoenicians, in their attempts to carry on commerce, brought to the Western world the practical arts of Asia. Perhaps no more striking example of the influence of commerce on ideas is known than the trade of the Italian cities with the Eastern countries. Like unto it was the influence of the Hanseatic League which extended trade to northern Europe.

The moral and religious influences of nations are extended through the channels of commerce. Indeed, sometimes this means is more effective in introducing new customs than that of direct missionary effort. The habits and customs of one people are taken up by another almost unconsciously as they communicate and intermingle through trade. This is especially noticeable in the spread of immoral practices. Ethical religion, on the other hand, is much more slowly imitated, yet commerce furnishes a great opportunity for its propagation. How important commerce may be in supplying means whereby religious ideas and practices are spread may be seen by a study of the spread of the Christian religion in the first few centuries of its history throughout the Roman Empire. The traveling Christian artisan and peddler were the most numerous and successful early missionaries if we may trust the historians.' But religious doctrines alone will not develop civilization. If not followed by opening up the nations to trade and communication with civilized nations, little progress will be made. This is as true with reference to missionary effort to-day in Asia and Africa as it was in the Roman Empire in the first Christian centuries. Missionaries have discovered that they must teach the arts of civilization if they are to dispose of pagan religions and that these arts must be followed by intercommunication with the civilizations of the world. All the missionary efforts in China will be of little avail if that nation refuses the arts of civilized life and closes her ports to the civilized nations of the world. Other-wise the hydra of paganism will perpetually grow and recreate itself, overwhelming and destroying the milder influences of the Gospel. In accordance with this principle, railways and other highways of trade will be the best instructors of the inhabitants of the Philippines in the arts of civil life.

But trade also develops, on the one hand, thrift, and, on the other, cupidity and avarice, for in a primitive land, where people have a surplus of one kind of goods and no means of exchange, there is no value attached to the goods and hence there can be no desire to accumulate or preserve. How often this has been illustrated by the growing of fruits and agricultural products in the development of the West. Ofttimes without a market, products of the soil have been rendered comparatively undesirable. With increased demand for articles created by the development of exchange, however, comes a desire for accumulation. This change in man's estimate of the value of things has, however, its good side. Out of the desire for better things, out of the emulation between people in the same community grows culture as well as jealousy and strife, new uses of wealth as well as miserliness.

While tribal and national warfare has risen on account of dissensions, jealousies, and desires for supremacy, conquest for plunder has been an ever potent cause of war. Indeed, warfare among civilized nations has seldom occurred without the desire to increase wealth in some form. The history of the Hebrews records the conquest and the despoiling of the enemy. The Oriental despots in their warfare encouraged the work of plunder and robbery. Even the Roman Empire in its conquests of foreign nations never lost sight of the wealth that was to be obtained by conquest, though it valued above all the glory of victory. Desire for wealth is often the cause of war today.

On the other hand, increasingly of late years the wish of the merchant and manufacturing classes of our Western countries has had an important bearing on the peace movement. For example, while some business men are desirous of war to protect their, interests in Mexico at the present time, the great mass of the American people engaged in business are earnestly hoping that there may be no war. They realize by sad experience that war means the blocking of many of the regular avenues of trade. War results in the impairment of confidence in business conditions. It means loss of prospective profits. Moreover, increasingly the business men of all nations, except that class which is immediately interested in the production of munitions of war or any class which may see a gain for their immediate interests, keenly realize that the business of the nation must bear the brunt of the cost of the war.

Effects of Social Progress upon Methods of Exchange. — No less important than the effects of exchange upon social progress are the results of changes in society upon the methods and ethics of exchange. With the growth of complexity in the social structure the methods of exchange are altered. The simple exchange of various communities gives way to the intermediation of a fixed market under rigid rules and customs, as illustrated in the medieval markets and fairs. With the development of a social consciousness and unity of feelings and purposes there comes confidence and the use of a common commodity as a medium of exchange, or money, and later the whole system of credit exchange.

Moreover, what began as presents to hostile groups for some ulterior advantage becomes with the growth of a code of morals and a sense of social obligations first a battle of wits and cunning and then an exchange for the advantage of both. In modern times a great change in the ethics of exchange has come about. In contrast with the medieval practices business ethics not so long ago began to frown upon misrepresentation of goods in the efforts to dispose of them, but left untouched the question of whether it was right to defraud the corporation or the foreigner. Then succeeded the policy of selling or trading a commodity upon its appearances. The horse was taken at his apparent value, the suit of clothes upon what it seemed to the buyer to be actually worth. Then there grew up the practice of merchants offering only the best goods, goods which they could personally recommend and guarantee, or else different grades, but with the difference in value made clear to the prospective purchaser. Once to profit by juggling the affairs of a corporation was not questioned ; to steal a railway was a gentle-man's business. To defraud the common people was the sign of business greatness. There has begun to grow up in our West-ern countries an abhorrence of graft. It has come to consciousness as the interrelations of our common social life have developed. Only as we have come to appreciate that " we are members one of another," and that if " one member suffers, all the members suffer with it " has there grown up a reaction against the plundering of others in devious and surreptitious ways. Within the last few years there has risen a belief that the man or combination of men who get control of the public streets for their own profit and without just compensation to the public, who " milk " a railway, who grab the public domain for the exploitation of the people and for the private advantage of this man or set of men are as bad as the man who sells at short weight or by short measure, as the farmer who put the spoiled potatoes in the middle of the sack, the small apples in the middle of the barrel, the musty hay in the center of the load, or the merchant who sells inferior goods by misrepresentation. The term " thief " has come to be applied to the man who gets control of water power, mineral resources, and franchise rights without due regard for the rights of the public almost as frequently as to him who steals a horse. This has come about partly because of economic reasons. It has been shown to be " poor business " to deceive. But supplementary to that motive for better business ethics is the ethical impulse and the social feeling of solidarity, as well as the dread of social reprobation, — a dread by no means of the least importance in influencing people to an ethical course of action.

The Use of Money to Facilitate Exchange. — Barter of commodities was an imperfect method of exchange before the use of money as a medium. Although the early forms of money were very crude and imperfect and the method of using it was but little above the old forms of barter, still, by degrees the system became perfected and money as an instrument of exchange greatly facilitated not only the accumulation of wealth, but also the progress of civilization. Instead of exchanging articles of all kinds, one well-known article, the value of which was well determined, was used to express the values of every other article. In the hunter-fisher stage cattle were used as money, and all values measured in terms of an ox or a part of an ox. Savage tribes have used shells or trinkets which became universally desirable. In the agricultural period frequently grains were used as a measure of value, but more and more people began to rely on metals as a medium of exchange. At first the baser metals were used, such as lead, iron, and copper ; but, finally, on account of their durability and universality, gold and silver became the chief money metals. The law of the creation of money is that an article must be, first, desirable, and, second, well known in the community where it is to be used, before it can become money. Then out of all the desirable and universally known articles those which are the most adaptable to the storage of value, those which are durable, easily divisible, port-able, and not easily counterfeited, are chosen. They are not chosen by the order of kings or governors so much as by the consensus of normal use.

While money rapidly increased the progress in civil arts, it too, finally became too clumsy for use in the larger transactions of exchange. Then the credit system came into use and by means of it transactions could be made so easily as to transform the processes of trade and industry. The invention of credit was to trade and commerce what the inventions of steam and electricity were to the development of the industrial arts. Credit is the perfect machine of exchange. By its introduction the methods of doing business were greatly changed, and consequently the habits of society were likewise influenced.

These developments in the methods of exchange are cited here because they are made possible by the development of social unity and because they have greatly modified the organization and grouping of society. They have had vast influence on social order and social activities. Credit instruments could not displace money until society had developed its organization to the point where men had confidence in each other. Credit is based upon belief in one's fellows. Confidence is a social creation. It is inspired by acquaintance with others, by the multiplication of social bonds making strangers known to each other and making it next to impossible, because unprofitable and undesirable, to be dishonest. With the growth of social organization and the multiplication of social bonds in ever widening reaches confidence in fellow-men was inspired and credit instruments became possible.

The Rise of Industrial Classes of Traders. — Many new groups of society have been formed on account of the practice of exchange ; the first of these were merchants or traders. Occupational division of labor with all its benefits was given a powerful impetus. While in primitive society individuals might bar-ter goods with each other personally, as society became more complex through the division of labor it became necessary for some one to act as an agent between those who were exchanging goods, that is, between the buyer and seller. First, as a mere peddler he bought certain lines of goods which he exchanged for other lines which were finally sold in the market for money. Later, great trading stations were established for the distribution of all kinds of goods and, finally, the great system of stores and storehouses has been developed, and with it the great army of tradespeople. The differentiation of this group becomes more marked each succeeding year as its services became more essential. Many shiftings of this group in modern life are constantly occurring. At present we have the manufacturers of goods as a separate class, the retailers as a third, and, finally, the commercial travelers and agents who serve the larger wholesale houses and form a distinct group of people. In recent years, owing to the increased confidence people have developed in our American society with the growth of easy communication and the waxing consciousness of social unity, there has been growing up a tendency for the manufacturer to sell his own goods directly to the consumer through the agency of the mails. In this way a close relation is brought about between the producer and the consumer. But even under the most favorable circumstances it is impossible to eliminate the intermediary groups. The social influence of the personal presentation of the merits of a good is still too strong for the economic desire for gain.

Another group of people arising on account of exchange are the bankers and commercial agents who facilitate the transactions of business. They furnish the ready money and the credit for carrying on trade and commerce. They represent the nervous system of the industrial world, and as such they have become essential to the modern methods of exchange, for just as the traders and merchants handle goods so they handle moneys and credits.

Extensive Exchange Dependent upon Transport. — As articles of goods which are to be exchanged cannot all be produced in the same neighborhood or, indeed, in the same country, it becomes necessary to establish some means of transport before trading on any large scale can exist. Among primitive people the individual trader travels from tribe to tribe carrying his trinkets with him. In the trade of the Orient, great caravans were first used, by means of which goods were transported on the backs of camels from one country to another. After the introduction of navigation, goods were transported in ships across seas, along rivers, and over the ocean to different countries. Here a new social group of transporters came into existence, and as it became necessary to market the surplus goods in foreign countries the carriers represented a separate social and commercial group. Where there were no means of water communication, canals were built to carry goods through inland countries. The building of roads and highways also became necessary as a means of transporting goods for people. In modern life the great steamship companies formed for carrying people and goods across the ocean, and the great railway companies which transfer millions of persons and millions of tons of freight each year across the Continent represent the highest development of transport groups.

Perhaps there is no better illustration of the development of an economic social group than in the comparatively recent rise of the railway systems of the world. Here are great organized groups engaged in a specific work of carrying freight and human beings from one place to another. So essential has the railway system of the nation become, that should they cease to operate for ten days, business would stagnate. Cut: off railway communication from one of our large cities, and in thirty days people would starve for want of the necessaries of life. Not only has the transport system become essential to business and life, but it represents one of the most compact and well-organized social groups. A market is impossible on any extensive scale, such as we have in our large cities, without such a system.

Advertising and Exchange. — No matter how perfect the transport system may be, exchange depends also on that important socio-economic instrument, advertising. The freight rates may be so low that they will not pay the actual cost of transporting the goods, and yet because the goods have not been brought to the attention of people there may be no exchange. A sufficiently strong demand must be created for the goods that people will pay the price necessary to secure their transportation to the place of exchange. Advertising creates a demand. It stirs the curiosity of people as to the goods advertised, and makes them see real or imagined merits in that particular consumption good. People thus get into the habit of using it, they are imitated by others, and thus the circle of demand widens, creating the fundamental basis for a market and exchange of commodities desire for the goods sufficiently intense to compete successfully in the judgment hall of the mind for first choice.

The Improvement of Social Organization. — But on account of the increased diversity of life, there is great need of improved industrial and political methods. That is, the organization must become articulated as society becomes more complex. As a great and complicated machine may depend upon the service of one little cog, so the complex organization of society will depend for its successful operation upon one part or group of people, and just as the clumsy machinery of the past must be perpetually abandoned for better models, so the machinery of social order must continue to improve if it is to bear well the extra burdens of society which it assumes. If, for instance, a group of people undertakes to furnish the coal necessary for the fuel of a nation, they must not fail, or manufactures will cease and people will freeze and starve. If a group undertakes to furnish the agricultural products necessary for the support of the nation, it will not do for them to remain idle for a year, otherwise the people will perish. If the railways and their employees have difficulties which result in cessation of traffic, some method whereby such interruptions shall cease must be devised in the interest of the people who depend on transportation for their existence and comfort. No laissez-faire theory can be allowed to stand in the way of social interference for the benefit of the public. Social organization must be devised to adjust such difficulties. Railway rates and service, control of natural resources like coal, oil, gas, and water are quasi public matters. Social arrangements must be made which will protect the consumers of these products. If railway rates are such that the products of one part of the country, such as apples, for example, rot in the fields or on the trees, while in another part there are other products, for instance grain, which can hardly be given away in that locality, it is evident that there is maladjustment either in freight rates on those commodities, or the advertising agencies and methods have not yet created a desire intense enough in consumers to create an effective demand for them. More than this, there must be perfection of the social machinery within the group. That is, if a company undertakes to furnish artificial light for a community and through the imperfection of their manufacturing plant, or through the imperfect method of administration they fail to furnish light at a reasonable rate, the people will devise other methods. These are illustrations of the integration of society which must work simultaneously with differentiation, otherwise the social organization becomes defective and unwieldy.

Likewise the political machinery must continue to improve or antiquated methods of administration and laws would interfere with the progress of social and industrial life. The political life exists for the protection of all classes and groups of people. Should it fail to give protection or promote harmony of interests, it would seriously interfere with the production and distribution of wealth, and consequently with social order and social progress. For instance, the regulation of the government respecting the tariff may interfere with industries to such an extent as to prevent the normal industrial progress of the people. It is possible, also, for a nation to make arbitrary rulings or to neglect to make regulations in regard to the use of money and the regulation of trade to the detriment of normal progress.

Approved Modes of Acquiring Wealth. In the improvement of the industrial system certain established modes for acquiring wealth are considered normal. Among these may be enumerated the discovery of desirable articles, the adaptation of land to various services, the transformation of products of nature into useful articles, and, in fact, the furnishing of any desirable article obtained by legitimate effort, or by value given on account of service rendered. All society is organized to the end of mutual service, and he who performs a given service without interfering with the rights of his fellows is entitled to the reward of such service. It is only through this means of normal service that people should become wealthy.

Disapproved Modes of Acquiring wealth. In this connection it may be important to mention several anti-social modes of acquisition. Among these, gambling, robbery, theft, certain forms of speculation, the exploitation of the weak, catering to vicious cravings, fraudulent bankruptcy, and class legislation may be enumerated. In each instance the object is to obtain that which belongs to others by illegitimate means, that is, without returning any service or value in exchange.

The robber who breaks into a house is not intending to increase the wealth or well-being of a community, but merely to get, by foul means, a share of the wealth already created. When two men play at the gaming table and one wins, the wealth of the community is neither increased nor diminished, nor is the community in any way served by the transaction. The men are not only non-producers in the transaction of gambling, but each is trying to take from the other what he possesses without giving anything in return. When speculation is carried beyond a certain limit, it is upon the same moral and economic basis as gambling or robbery. It seeks to exploit humanity and obtain by chance or foresight a portion of the wealth already created, without giving any return in value or service. When legislation is influenced to build a railway in a certain direction to benefit a few persons at the expense of many, or when the city council is influenced to perform a service for one at the expense of others, the general public is not served ; it is exploited. In such cases the people's money is used for the benefit of a few. It is like collecting money from each of a group of individuals and giving it to one without any return.

Such methods are common where the political world first comes in contact with the industrial and confuses it. The perfect adjustment of society will eliminate them. This is one of the difficulties of modern society, for while it is generally conceded that political and civil government should be carried on for the mutual benefit of all members of society, the theory that a man has a right to accumulate and use wealth as he pleases, regardless of the well-being of others, has permitted the perpetuation of ancient forms of piracy and brigandage under new forms of industrial life, which men excuse by calling them " business." Or, to take a more debatable example, a man or company buys up lands and does nothing but hold them until society by creating a demand for the products and services of these lands greatly increases their value. It must not be forgotten, of course, that by holding the lands from a period when they are only slightly in demand to a time when they are more in demand the speculator has given to them what is known in Economics as " time utility." That is, he has invested his money in them and is entitled to interest on that money. He took some risk, moreover, when he bought what no one else wanted, and therefore is entitled to a speculative profit for having taken that risk for the sake of society. In order that people should be induced to take such risks, the man who fore-sees what is going to happen must be more liberally rewarded than he who takes very little risk. However, after all these legitimate allowances are made, it is a question whether the unearned increment obtained by speculative investors should go to the investor entirely. Should not society which has created the value take a part of that increase in value? The same question arises with respect to other natural resources such as water power, timber, and mineral resources.

A similar principle is in question in the case of so-called " high finance " as seen in the manipulation of railway and industrial stocks and bonds by individuals who are shuffling the cards for their own advantage at the expense of the legitimate investor and of the public. The promoter and reorganizer undoubtedly are entitled to a rather large return for their services in bringing together capital for legitimate enterprises when the money is honestly used in industrial production. They are not, however, entitled to use such an opportunity to " milk " the enterprise for the benefit of the insiders and to the detriment of the stock-holders and the public dependent on that enterprise for their welfare. Public policy is against such a procedure, and the laws should make it impossible. That society has tolerated such anti-social policies is due partly to ignorance of the public concerning the evil, and partly to the indifference characteristic of American life concerning large public policies which involve the whole people of the United States and partly to the dominance of the economic doctrine of laissez faire. The investigations which have been or are being carried on by the various states and the Federal government will dissipate the ignorance. American provincial indifference to national problems will disappear with the progress of social unification of the population of our large territory. A new theory of economics is rapidly displacing the old classical system, and when finally completed will be found to be an economics shot through and through with the social idea that economic conditions can be altered by human endeavor.


DE GREEF, G. Introduction d la Sociologie, Part II, p. 39.

ELY, R. T. Outlines of Economics, Rev. Ed., 1908, Chaps. XI, XII, XXVI.

FETTER, FRANK A. Principles of Economics, Rev. Ed., 1910, pp. 1-40, Chaps. XIII, XIV, XXXI, XXXIII, XXXVI, XXXIX.

SCHAEFFLE, AUGUST. Bau und Leben des social en Kφrpers.

SPENCER, HERBERT. Principles of Sociology, Vol. II, pp. 387-403.

WALKER, FRANCIS A. Political Economy, pp. 120-143.

WARD, LESTER F. Dynamic Sociology, Vol. I, p. 565.


1. What inconvenience was there inherent in the exchange of commodities themselves, which was obviated by the introduction of money?

2. Show how exchange increases the value of an article.

3. Set out clearly the effects of exchange upon social life.

4. In what ways does social development affect exchange?

5. Trace the various steps in the development of exchange in the history of the United States.

6. What social classes exist in your community as a result of the organization of exchange?

7. Why is the mail order house able to compete with the local merchant for trade? Which of these reasons are economic and which are social in their nature?

8. What evils are to be seen in our economic and social life as a result of maladjustment in our organization of exchange?

9. Show that a strike is due to lack of adjustment of social machinery to prevent it.

10. Give illustrations from the history of the United States tending to show that development of ethical sentiments by a society makes certain businesses and some methods of doing business impossible.

11. What changes are just now under way in this country in methods of doing business due to the development of new social standards?

Outlines Of Sociology:
Theory And Function Of The State

Social Phases Of Production And Consumption Of Wealth

Exchange As A Social Function

Evolution Of Ethics

Social Origin Of Religion

Development Of Religion

Processes Of Socialization

Social Forces

Social Laws

Social Mind

Read More Articles About: Outlines Of Sociology

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