Concept / Value

The power of exchange

Every good satisfies some human need or the other and, therefore, has utility or use value. However, not all goods can be exchanged with other goods or be sold at a price.

When a good satisfies a human need and has utility, but does not possess any utility for its owner or producer, that good can still be useful to others (who have needs which can be satisfied by that good), and the owner/producer of that good can exchange it with other people for other goods which he requires.

This means, the value of that good no longer rests on its utility to its owner/producer, but is determined by the good’s ability to be exchanged for other goods. Hence, the value of an economic good rests not only on its utility, but also on its exchange value. The greater the ability of this good to be exchanged for other goods, the greater is its importance to us, and the higher is its value.

Image courtesty - www.limonwhitaker.com

Image courtesty – http://www.limonwhitaker.com

In other words, for a good to have exchange value, it should be able to satisfy the needs of others (i.e. possess use value for others) and, in return, satisfy our needs with other goods or their equivalent once the exchange is completed. So, in reality, we produce goods not just for our own use or consumption, but for others’ use and consumption, giving us in exchange other goods which have use value to us.

Goods are exchanged with other goods in different proportions or ratios, and their importance is determined by how much of the other goods are exchanged for a single unit of the original good which is offered in exchange. Needless to say, a good that is exchangeable with many other goods and/or brings in greater quantities of other goods in exchange is said to possess greater powers of exchange.

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