§ 5. Representative quality of money. Buying and sell ing by means of money is not essentially different from a case of barter in which gold (or other standard money) is one of the two goods in the trade. Except in the rarest cases, the price-good, money, is taken by the seller for its power-in-ex 1 By proper safeguards regarding their quantity and their ready ex changeability for gold.
change for other goods, not as metal to be used in the arts. The money is taken for its representative quality (see above, section 2) ; it represents to the trader the desirability of the things that it can be expected to buy. Money becomes in the thought of the traders something like an algebraic symbol, but it stands for different things and groups of things to different traders, and to each its significance changes from one moment to another, according as he chooses to use it in buying different goods.
When numerous things are bartered, the ratio in one transac tion is unrelated with that in another. Tho there might be at the same time and place a hundred acts of barter, as sheep for cloth and wheat for shoes, etc., in large part each act of barter stands by itself in the thoughts of men. There is no common unit of comparison for prices. But if sheep, cloth, wheat, and shoes are each in turn sold and bought with the money unit, money becomes a common unit of expression not only for prices on the market, but for the various individ uals' valuations of goods. The habit of comparing goods in
terms of money grows, and for convenience men frame their own valuations in monetary terms, as they approach a trade to bid and ask, and buy and sell.
§ 6. The sale at auction. Let us now approach the price problem as it presents itself when groups of traders come to gether, and where bids are expressed in some common unit of price. We will consider first the simplest case of price fixing in a group, that of the auction sale. In auctions on the Dutch plan the auctioneer first names a high price and then succes sively lowers the price until some buyer takes it. Balancing his hopes and fears, some one bids it in, because he fears that when a lower price is named some one else will take it. In auction sales on the English plan the auctioneer asks, "What am I bid?" and after . getting "a starter" he stimulates the desire of the bidders by praise of the sale-goods, keeps the crowd good natured and optimistic by artful story telling, arouses the spirit of rivalry in the bidders, and excites their fears by skilful threats of "going, going," until, shrewdly watching their faces, he feels that the limit is reached. Then he lets fall the hammer, "knocking the article off" to the "lucky buyer." The auctioneer in all this is himself under some pressure, and the success of the sale as a whole depends much on his skill. He dare not delay long for a higher bid on any one article, for unless the bidders continue to believe that things can be had at low prices (i.e., at less than new goods will ordinarily bring) the interest flags and the crowd melts away.
§ 7. Bids in relation to valuations. Note how the prices paid are related to the valuations of the bidders. Suppose that an ax is to be sold at auction, and each one of the ten prospective buyers as he comes to the market has his outside valuation, as follows: When B 3 has bid 50 he has reached his limit and only two other bidders remain. B 2 may then hope to be successful at 51, but B 1 "goes one higher" at each bid until the bid of 54, at which point B 2 drops out. The price in an auction sale is the next unit above the next to the highest bidder's maximum valuation? When there are several urgent bidders for a sin gle article, or for a number of articles less numerous than the bidders, the price sometimes goes considerably above what is "normal." For example, if several farmers in the neighbor 2 This may be called the theoretically exact price, under the assumed conditions. Of course inattention, forgetfulness, etc., on the part of the bidders alter the conditions and therefore the price (both theoretical and practical).