very small compared with those of to-day, almost universally a "barter economy" prevailed or, as it has been called, a "nat ural economy" (a term taken from the German "Naturalien," which means natural products, enjoyable things, as opposed to money). Natural economy, therefore, means that condi tion of society in which things are exchanged "in kind." In the Middle Ages land was the chief form of wealth. Even princes were dependent on the products of land for their in comes. The peasants were "paid" (as we think of it) for their work by the grant of the use of land. The income of the landlords was in the form of "Naturalien" (wheat, chickens, eggs, etc., as well as labor), the kind and amount of which were fixed by contract or by immemorial usage. The use of money has greatly changed these conditions in Europe and America, but barter still is used in outlying districts, and in backward countries. It occurs more frequently than one is likely to think, in trade between savages and civilized traders, in rural districts, on the school grounds, between neighbors in horse trades and house trades, in multitudes of trades made by the help of want advertisements, and in many other cases.
The extent of the use of barter to-day does not, however, measure the importance to the economic student of under standing it. The true measure is the fact that without com prehending the process of barter it is impossible to comprehend much beyond the superficial aspects of developed markets and prices. The zoologist studies the simpler forms of life, uni cellular or little organized, as the best way to understand the higher organisms; so we must analyze the simplest forms of trade as a means to the comprehension of the most complex. Barter contains within it the elements from which develop all the forms of commerce.
§ 3. Some trading terms defined. Buyer and seller are the two parties to the transaction, the two traders; the buyer being the one acquiring a good not in his possession, the seller the one giving up the possession of that good in return for something else. Either of the goods may be taken as the point of departure in thought, and either party to the trade may be then looked upon as buyer or as seller.
Price is the good given by a buyer in a trade. In barter either good may be looked upon as the price of the other. At present one of the two goods is most often money of some par ticular kind expressly mentioned, or clearly implied. When money is used in a trade, its quantity is looked upon as the price, and the other good is looked upon as sold for, and bought with money. Price may be per piece of a conventional
size, as per quart, bushel, yard, pound, or for the entire group of objects or amount bought, as the price of a farm, of an entire stock of goods, etc., as is likewise usually shown by the context. The other good, that for which a price is paid, may be called the sale-good.
§ 4. The problem of price. Few words are more often on the lips to-day than price. If the price of a thing is high, the thing is dear; if price is low, it is cheap. What makes things cheap or dear t That question puts the price problem. It is a matter of every-day observation that when things are more plentiful than usual they are pretty sure to be cheaper; when they are scarcer than usual they probably will be dearer. Hens lay few eggs in the winter, but many in the spring. Apples are few on the trees and of poor quality one year, and plentiful the next. Rains are late and inadequate, and the crop of cotton in the South, or of corn in the Middle West, or of hay in the Northeast of the United States is small, and as quantity is small prices are high. Every one knows in this general way about prices and the reasons why prices change. Some men of business become astonishingly skilled in follow ing and anticipating the changes in price of the particular goods in which they deal. But the purpose of the student of economics is not to learn the conditions that influence the prices of particular goods except as they may serve as exam ples, but rather it is to understand the general nature of all price movements and the principles determining all prices.
The thoro pursuit of this purpose is a large part of the task of economic study.
§ 5. Demand. The phrase demand and supply is very fre quently used as an explanation of economic problems, with out any clear conception of the meaning of the words. Let us examine the meaning and the difficulties of the phrase.
Demand conveys the idea partly of the intensity of the de sire of a trader for a certain good, partly of his having some thing (a certain amount) which he is willing to give for it, and partly of the amount of goods which he desires to buy at the price. Thus we may define : demand is desire for a cer tain quantity of goods at a certain price, united with the power to give the amount of the price in trade for it. Real demand refers to actual trade, for demand is effective desire, desire backed by the price needed to induce the other party to trade. It is convenient, however, to speak of potential de mand as the amount which buyers would be ready to take at some specified price.