We must now study somewhat more analytically the different possible types of exchange to which reference has been made, for the purpose of ascertaining the true significance of each.

1. When a producer ceases to consume his own output and exchanges it for the output of another similarly situated producer, the operation is called barter; and the goods exchange in proportion to the relative necessities and bargaining power of the participants.

2. When other producers engaged in turning out similar goods begin to participate in the process of exchange, offering their goods against one another and competing together, a market is established. In such a market where competition exists values tend toward a stable or uniform level and the power of one commodity to command others is called its purchasing power, or price.

3. When a commodity is offered for others in a competitive group of the kind just described, resulting in the establishment of a price, this price is usually expressed in terms of some one commodity selected for that purpose and known as a standard of value. If this standard is used in direct exchange for other goods it may be termed money. In that capacity it has usually or sporadically the functions of standard of values, standard of deferred payments, medium of exchange, store of value, and others which may be regarded as derivatives of these.

4. When a commodity is transferred by its maker or owner to another trader, but without any direct payments, the transaction is said to involve credit; and a credit transaction may be defined as an uncompleted or deferred exchange or as an exchange not yet closed. Eventual closing of the exchange may occur through transfer to the original seller of other goods in an amount or quantity satisfactory to him. A credit transaction may, however, be stated in terms of money and be closed by the return of a specified quantity of money regardless of the power of such money to command other commodities.

5. When a trader both buys and sells on credit, holding himself liable to those with whom he deals for the net balances due them, he has assumed a general credit relation to the community, or, in other words, he is carrying on credit transactions with the public as a whole. Such transactions constitute banking, which is the process of generalizing credit, clearing or canceling it, and so effecting the final exchange or redistribution of goods. In commercial banking the banker carries on his dealings solely in terms of money and usually assumes the obligation to furnish money to any customer on demand up to the amount of the latter's net claim.