As one proceeds up the SUPPLY CHAIN, and from the human animal
thru the human social animal and sociocultural system, we find that the
paradigm, NEEDS, WANTS, and DESIRES, repeats itself on each level[1].
This paradigm reflects changes in the power relationship between Buyers and
Sellers in the transaction space. The power relationship can be divided into
two parts – survival and replication.
Survival and replication takes place in all living systems.
Humans have evolved two basic exchange systems that take place between individuals and/or social systems. These are a barter system and a monetary system, Exchange systems have a cultural significance that derives from the meaning and value of the products exchanged to the Buyer (recipient) of the product and the Seller (offeror) of the product. These exchange systems are barter and monetary, discussed below. In either system, the buyer seeks to acquire a good or service that meets a personal or social NEED. The seller offers to exchange a good or service in order to acquire a product that fills his/her NEED.
Survival and replication takes place in all living systems.
Humans have evolved two basic exchange systems that take place between individuals and/or social systems. These are a barter system and a monetary system, Exchange systems have a cultural significance that derives from the meaning and value of the products exchanged to the Buyer (recipient) of the product and the Seller (offeror) of the product. These exchange systems are barter and monetary, discussed below. In either system, the buyer seeks to acquire a good or service that meets a personal or social NEED. The seller offers to exchange a good or service in order to acquire a product that fills his/her NEED.
A barter system is a social system of exchange that creates the status/role set of a
“buyer and seller” that both parties to the exchange occupy In a barter situation each party acts as both a Buyer/Seller. The value of the items exchanged is relative. The value is
determined by the
ratio of supply and demand at the given moment in the given place where the exchange takes
place. Each party engages in a search process to find an interested BUYER for
their good/service. And they act as a SELLER of the product
they seek to exchange.
A modern exchange system involves a unique commodity,
Money. Money serves as an intermediary in an exchange system and
separates the roles in the system, by separating the Status of Buyer from
Seller. Money is the physical and ideational manifestation of a
cultural expression of value for a good and/or service. The value of a
commodity is determined by the buyer and seller acting as members of a
sociocultural exchange system.
Value is expressed as a ratio between the supply of
the product and the consumer demand for it.
Money, in this instance, is just another commodity. In and of itself, Money has no intrinsic value. It only derives its value based on what individuals and cultures give to it. It is symbol and may be represented in physical form or an entry in a journal.
Money, as a cultural commodity, becomes a store of value for expressing this ratio. When a willing Buyer offers and the willing Seller accept a quantity of money in place of a good or service, money becomes the medium of exchange that captures this relationship. Money, by serving as an intermediary commodity, gives cultural meaning to the value (ratio) of the exchange by serving as a “neutral” unit of account shared by and equating the Buyer’s willingness to pay and the Seller’s willingness to accept a transaction.
Money, as a cultural commodity, becomes a store of value for expressing this ratio. When a willing Buyer offers and the willing Seller accept a quantity of money in place of a good or service, money becomes the medium of exchange that captures this relationship. Money, by serving as an intermediary commodity, gives cultural meaning to the value (ratio) of the exchange by serving as a “neutral” unit of account shared by and equating the Buyer’s willingness to pay and the Seller’s willingness to accept a transaction.
The monetary situation separates the Buyer and Seller roles. The Buyer has specific needs, wants, and desires while the Seller
has a specific product, (a good or service) to offer that may satisfy a
particular need. The Buyer is thus engaged in a search for the “best deal” or
an exchange rate that gives him/her the best or greatest future return or
benefit (utility) for his/her investment in a Seller’s offer.
The Seller is focused on the “best deal” from selling the product of his/her investment in time and effort to produce and sell the product. This “best deal”
is defined in terms of finding the Buyer or situation where she can find the
greatest Need (demand) for the product and gain the "best price."
Finding and creating the “best deal” is an uncertain event.
The difference between the best deal and a good deal is risk each actors assume
by accepting a deal. Here is where a monetary system captures the uncertainty
(or risk) of a “best deal”. Money, in exchange for a current good or service,
enables the Seller the opportunity to concentrate on production and sell it
when it is ready.
Money allows the Buyer to acquire the product in the amount and at the rate she/he wishes to consume it, rather than depending a single producer or single opportunity. The differences in the risk of holding or using the product is transferred by the monetary system. The risk value of holding (storing) or using (consuming) a good can be measured in terms of the discount rate, or interest paid for holding the money between transactions.
The Agricultural example
Money allows the Buyer to acquire the product in the amount and at the rate she/he wishes to consume it, rather than depending a single producer or single opportunity. The differences in the risk of holding or using the product is transferred by the monetary system. The risk value of holding (storing) or using (consuming) a good can be measured in terms of the discount rate, or interest paid for holding the money between transactions.
The Agricultural example
The good example here is agricultural production. Here the
farmer requires seed at the beginning of the growing season to begin production
of a crop. In a barter system, he would have to reserve some of last year’s
crop production for seed to use in the next season. This exposes him to the
risk that not having enough for food or trade between harvests. In a monetary
system, the farmer can borrow Money from a “bank”today, at a known interest rate or risk
premium, to use to buy the seed needed today. Assuming that the farmer has a good season both he and the bank prosper when the farmer pays the loan owed plus interest, from the proceeds from the sale of the future harvest.
If it is a bad year, some of the risk has been transferred to the Bank and might be postponed for another season via another loan and interest rate. The Bank becomes an intermediary between the planting and the harvest, i.e. the capital investment and the investment's return. The Bank shares the risk and would lose its investment should it chose to foreclose on the loan.
If it is a bad year, some of the risk has been transferred to the Bank and might be postponed for another season via another loan and interest rate. The Bank becomes an intermediary between the planting and the harvest, i.e. the capital investment and the investment's return. The Bank shares the risk and would lose its investment should it chose to foreclose on the loan.
By transferring risk, the farmer is taking out “insurance”
today against the potential failure in the future. Here failure is a metaphor
for the risk to “survival” and the “insurance” a metaphor of the potential for
“replication.” These are cultural tools that humans have developed to spread
risk and to bind social groups through an exchange system.
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