Appendix F

In this very short appendix, Marshall explains how the exchange rate in a barter economy (e.g., apples for nuts) will be somewhat arbitrary compared to prices in an economy using money.

In a barter economy, each side has a willingness to trade based on the marginal utilities (MU), since (assuming one has nuts to trade for apples) MU is rising as their stock of nuts is falling, and MU is falling as their stick of apples is rising. In a monetary economy, prices are more stable because (it is assumed) the stocks of both apples and nuts are “unlimited” because apple traders can use cash to buy anything, not just nuts.

This post is part of a series in the Marshall 2020 Project, i.e., an excuse for me to read Alfred Marshall’s Principles of Economics (1890 first edition/1920 eighth edition), which dominated economic thinking until Van Neumann and Morgenstern’s Theory of Games and Economic Behaviour (1944) and Samuelson’s Foundations of Economic Analysis (1946)┬ápivoted economics from institutional induction to mathematical deduction.

Author: David Zetland

I'm a political-economist from California who now lives in Amsterdam.

Leave a Reply

Your email address will not be published. Required fields are marked *