_Distribution by exchange._--Ordinary observation shows that distribution is made chiefly in the customary method of exchange. A pound of butter may find its way from the farmer's dairy to the actual consumer in a distant country. In its final value, the consumer compensates the retail dealer for his services in handling it and for advance payments, including every other handler and every other service, down to the boy who drove the cows to pasture. If the system of universal exchanges is free and fair, each has received his fair compensation. In general, then, distribution of wealth is made automatically in the ordinary processes of production, exchange itself being one of the steps by which value to the consumer becomes value also to the producer.
_Fair exchange above laws._--Under perfect freedom of exchange, the general law of supply and demand already illustrated is more effective than any laws can be in adjusting wages or profit to efforts in production, and in adjusting interest or rent or both to the capital employed or to other means of production controlled. Any customs or laws which interfere with natural conditions of supply and demand hinder rather than help toward a fair adjustment. In any progressive community such laws will surely fail, for the reason that in making such laws human nature is in conflict with itself. The history of increasing individual welfare in any part of the world gives a story of more ready and free competition in open market for all commodities and all services. In perceiving this we must not overlook the fact that fraud and ignorance, as well as arbitrary power, stand opposed to fair exchanges. Nor must we be satisfied with any condition which involves meeting restrictions with restrictions or force with force. Such conditions must be but temporary.
_Actual and nominal compensation._--In considering compensation for any services, it is necessary to distinguish carefully between the actual compensation in welfare and the nominal compensation in money. A farmer in Nebraska may get a larger return for his labor with corn at 15 cents a bushel than he could in Massachusetts with corn at 40 cents a bushel. Just so a wage-earner, receiving $1.50 a day in Ohio, might lose in welfare by exchanging work with his neighbor in New Mexico, who gets $2.50 a day. This means that $1.50 in Ohio may buy more comfort than $2.50 can buy in New Mexico. This is very important in comparing the wages of different classes of workmen in the same country, as well as the wages of similar workmen in different countries. It has an important bearing, too, upon relative profits and interest. The actual compensation in welfare is the natural basis for adjustment in all distribution, and the law of supply and demand rests directly upon this.