Private property, owned by individuals for executing the will of the owner, was assumed and taken for granted, without investigation, by the ninteenth century economists. The kind of property with which they were familiar was "corporeal" property, the rights of ownership of lands and physical commodities, which were the products of labor. Their buying and selling was merely a "voluntary exchange" of one item of physical property for another item.
But the incoming of joint stock corporations, labor unions, and universal suffrage without property qualifications, changed the legal foundations of economics. Corporations now began to own the bulk of corporeal property as valued on the markets, and individuals owned the stocks and bonds of the corporations. Laborers, backed by the new universal suffrage, obtained legal rights to organize and bargain collectively with corporations and individual owners. Political parties became the organizations through which these legal foundations of economics were maintained or changed.
In this process three types of transactions may be distinguished instead of the one type of voluntary exchange of physical commodities by individuals. These are the rationing transactions by the "policy-makers" of the organization--boards of directors of corporations, or similar directors of labor unions and administrative political governments--in laying down working rules; the managerial transactions between superiors and inferiors, mainly wage earners and salary earners in the production of wealth; the bargaining transactions on the markets which transfer ownerships of corporeal property and the new kinds of incorporeal and intangible property of bonds and stocks of corporations.
All of these varieties of transactions are in operation at the same time, and the problem is not the total elimination of any one kind, but the balance among the three in the processes of economic activity. The latest to come historically into prominence were the bargaining transactions; the most ancient were the managerial transactions. Rationing transactions, which are also of ancient origin, have latterly become of major importance through the activities of corporations, unions, and governments.
The free bargaining transactions among individuals were the legal foundations of the early science of economics. But exactly what it was that the bargainers "exchanged" in these transactions was not made clear at the hands of the economists. There developed a double meaning of the word "commodities": a proprietary meaning, intended by the courts, of the acquisition and alienation of ownership; and a technological meaning, used by the economists, for the production, transportation, and physical delivery of the thing owned. The proprietary meaning was assets, the legal capacity to pay debts and taxes which were known as liabilities. The technological meaning was wealth, the product of labor, and the enjoyment of consumers.
The ownership meaning had become the foundation of the credit system and its method of creating credit money in place of metallic money, by the businessmen and the banks. This ownership meaning had been working itself into economics by decisions of the courts in enforcing contracts, and, therefore, had become dominant over the technological meanings of the economists. For example, I deliver to you a horse, you deliver the money. It is an exchange. But I may not own the horse. You may not own the money. Only the owner of the horse can sell it and give legal title. The owner of money is different, however. A thief can give, under certain circumstances, a legal title to the money which he has stolen and with which he pretends to buy a horse. Money becomes a privileged kind of asset. It alone pays taxes and debts.
For this reason everybody tries to get the ownership of money. It cannot be taken even by its rightful owner if the payee accepted it in good faith, even from a thief who had stolen it.
It is not even the owner or a thief who transfers the ownership of property and gives a good title of ownership. It is sovereignty, the law of the land, as worked out by court decisions through the centuries in the form of the "common law." Business economics has more or less clearly distinguished between a "transaction" and an "exchange." This conforms to the distinction made in courts of law, which, after all, are closer to business practices every day than are the economists. A bargaining transaction is the negotiations and agreement which transfer ownerships under the "operation of law." An "exchange" is reduced to the mechanical and labor process that physically delivers the object under commands of the owner.
The accepted formula of early economists that "goods exchange for goods" fits only a primitive "barter economy." They omitted the bank credit system and the decisions of courts. Shoes are not exchanged for wheat, but both shoes and wheat are today sold for a checking account at a bank, known as a "bank deposit." Even bank "deposit" is a misnomer. It is a bank debt owed by the bank, payable on demand to the "depositor" who, in turn, is not a depositor, but a creditor. By drawing a check on that account he who has sold the shoes in "exchange" for somebody else's check on a bank goes out into other markets and buys with his own check whatever he wishes and can command in exchange. The banking and credit system of the world has destroyed the simplified barter economy of traditional economics. "Goods" do not exchange for "goods"; they are generally sold for a checking account, which is a creditor-debtor relation of contracts enforced by the courts.
The obsolete formula of a barter economy stumbled on this double meaning of the word "commodity"--the double meaning of ownership and the thing owned--assets and wealth. When the manufacturer sells his shoes, or the farmer sells his wheat, it becomes a "commodity," meaning anything that is bought and sold. But he does not sell the shoes, he alienates his ownership of the shoes, and he does not sell the wheat, he transfers its ownership.
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