Exchanging One Good for Another

Although this presentation deals primarily with the use of money in indirect exchange, I thought you might find it helpful to see the relationships in direct exchange transactions. To fully understand the role of money and the impact of inflation-deflation it helps to keep in mind that people value money based on how they value the thing for which they think they can exchange that money.

People do not value money for what money itself adds to their well-being.

We will look at a few examples of what happens to the direct exchange price (the ratio of exchange between goods) when production remains fixed or goes up or down.

These diagrams demonstrate the somewhat counter-intuitive relationships between quantities exchanged and direct exchange prices (or exchange rates).