The Law of Exchange

The Law of Exchange : Money is the medium through which people exchange their labor in the production of goods and services for the goods and services of others.

Before there was money, there was barter. In barter, people exchange goods and services directly for goods and services without the medium of money. As civilization grew and barter became too clumsy, people found that they could exchange their goods and services into a medium like coins, which they could then exchange for the goods and services of others, thereby making the whole process more efficient. Today, we go to work and exchange our work for money, which we then use to purchase the results of the work of other people.

The first corollary of the Law of Exchange says: Money is a measure of the value that people place on goods and services.  

It is only what a person will pay that determines the value of something. Goods and services do not have a value separate and apart from what someone is willing to pay for them. All value is therefore  subjective and based on the thoughts, feelings, attitudes and opinions of the prospective purchaser at the moment of the buying decision.

The second corollary of this law says: Your labor is viewed as a factor of production or a cost by others. 

We each have a tendency to look upon the “sweat of our brow” or our work, as something special because it is so intensely personal. It comes from us and is an expression of what we are as a person. However, as far as others are concerned, our labor is just a cost. As intelligent consumers, as employers or customers, we want the very most for the very least, no matter whose labor is involved.

For this reason, you cannot place an objective value on your own labor. It is only what other people are willing to pay for your labor in a competitive market that determines what you earn and what you are worth in financial terms.

Third corollary of this law says: The amount of money you earn is the measure of the value that others place on your contribution.  

The way the market for labor works is simple. You will always be paid in direct proportion to three factors: the work you do, how well you do it, and the difficulty of replacing you.

How much you are paid will be in direct proportion to the quantity and quality of your contribution in comparison with the contributions of others, combined with the value that other people place on your contributions

The fourth corollary of the Law of Exchange says: Money is an effect, not a cause. 

Your work or contribution to the value of a product or a service is the cause, and the wage, salary or earnings that you receive, is the effect. If you wish to increase the effect, you have to increase the cause.

The fifth corollary of the Law of Exchange says: To increase the amount of money you are getting out, you must increase the value of the work that you are putting in. 

To earn more money, you must add more value. You must increase your knowledge, or increase your skill, or improve your work habits, or work longer and harder hours, or work more creatively, or do something that enables you to get greater leverage and results from your efforts. 

Sometimes, you have to do all of these together. The highest paid people in our society are those who are continually improving in one or more of these areas to add greater value to the work that they are doing.