1. Advantage of trade.
Whenever two persons having valuable goods meet, there is a chance that
their valuations of goods at that time will not be the same. One person
may have more food than he needs at the time but be lacking in
clothing. If each gives to the other some of the good which to him has
smaller value, and receives some of the other good, in an amount which
to him is more valuable, each of the two parties will be the gainer.
This mutual giving is trade. Trade increases the range of choice open to
men. Each good that can be traded takes on a new importance, that of
procuring other things in trade. In addition to its own power to gratify
a desire, it gains a representative quality and appeals to desires with
the power of all the other objects for which it can be traded. It draws
its value from two or more sources, one source being its own direct
uses, the other sources being the uses of each thing for which it may be
traded. This led men to speak of value-in-use and value-in-exchange.
But it must not be thought that an object has to any one person two
values at once; for as each good had before but one value at a time to
any one person tho it had many uses, so when it gets the trading use, it
continues to have but one value at a time, as determined at the margin
of least urgent desire.
Readiness to trade shows a man’s desire to
redistribute his goods in accordance with the principle of substitution.
He virtually says: “Part of what I have I am ready to give for part of
what you have.” The relative strength of his desire for the other good
is expressed in part by the amount of his offer. When he makes this
comparison and this offer, he enters into the social, economic relation
of trade with his fellows.
2. Barter.
Trade without the use of money or even the form of the
money-expression, is rarely seen by the city boy to-day. Yet it has
played a great part in economic history. In early societies the
differing natural products of different localities were the most usual
objects of trade. Salt, so essential to life, is on the whole plentiful,
but it is found in comparatively few places, in rare springs, and in
the salt seas, and was eagerly brought from great distances. Copper,
when it took the place of stone as the material for weapons of defense
or of the chase, was sought far and wide. Rare shells, feathers, jewels,
and the precious metals appealed in early times to a universal desire
for ornament. Products like these were in early times the objects of a
rude sort of trade, which took the form of gift-making or of barter,
accompanied by much higgling, in the simple efforts to adjust
possessions better to desires. In the Middle Ages, outside the cities,
which were very small compared with those of to-day, almost universally a
“barter economy” prevailed or, as it has been called, a “natural
economy” (a term taken from the German “Naturalien,” which means natural
products, enjoyable things, as opposed to money). Natural economy,
therefore, means that condition 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 incomes. 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
understanding it. The true measure is the fact that without
comprehending the process of barter it is impossible to comprehend much
beyond the superficial aspects of developed markets and prices. The
zoölogist studies the simpler forms of life, unicellular 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
particular king 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? 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 following 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 examples, 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 frequently used as an explanation
of economic problems, without 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 desire of a trader for a certain good, partly of his
having something (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 certain 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 demand as the
amount which buyers would be ready to take at some specified price.
The hungry boy looking longingly at the
sweetmeats in the confectioner’s window, represents mere desire; not
until the kind-hearted gentleman gives him a nickel does he represent
demand for sweetmeats, and then only in case the sweets are the nickel’s
worth that he most desires, and not then unless the confectioner is
willing to part with the coveted article for a nickel. Demand is actual,
desire for a sale-good is effective, only in reference to a certain
price, the quantity of the goods which the seller will take for it. We
may speak of the intensity of desire, but should say rather the extent
(or amount, the number of units) of demand.
6. Supply.
Supply is the correlative of demand in the phrase, demand and supply;
it is the amount of sale-goods which sellers are actually ready to trade
at a given price. Supply implies the existence of desire as surely as
does demand. Indeed, supply may be defined as desire for a certain
quantity of price-goods, at a certain ratio of exchange, united with the
power to give sale-goods for them. Supply should not be confused with
the stock in possession. The two may differ greatly, for at a given
price a person may choose to offer for trade little or none at all of a
good, even tho he has a considerable stock of it on hand. Demand and
supply vary as the price changes, but in opposite directions. Demand
varies inversely with price (rises as price falls), and supply varies
directly with price (rises as price rises).
7. Limits of advantage in isolated barter.
In barter the trade can take place only within certain limits of price
permitting each party to gain somewhat by the choice. The number of
units of sale-goods compared with those of the price (each in some
specific unit, as pound, yard, gallon, etc.), expresses the ratio of
trade (or ratio-of-exchange). When two farmers “trade even,” a horse for
a cow, either the horse or the cow may be looked upon as the price of
the other good, and the ratio of exchange is 1 to 1. But the fact that
in trade one thing is equal to the other does not mean that in either
trader’s opinion the values of the two things are equal. Indeed the very
motive of the trade to each party is that he may get what is to him a
more valuable for a less valuable object. To even up a trade something
may be given “to boot” and one thing be traded for a group of things, as
a gun for a boat and a set of fishing tackle, or on rabbit for a lot of
25 fish.
It must nearly always be the case that there are several ratios of
exchange at which a trader has more or less of a motive to trade.
Where there are only two (or a small number
of) traders there is a considerable range for bargaining, or higgling.
For example, the owner of the rabbit might be willing to take 20 fish
rather than not to trade, and the owner of the fish might rather give 30
fish than go without the rabbit. It is not at all certain that in such a
case the trade will be at a ratio arithmetically midway between the
extremes. Higgling is illustrated by the old-time American horse trade,
in which so much depends on “bluff”; in such cases it is as important to
be able to judge character as to judge horses, for the bargain will be
concluded at a ratio of price to sale-good which exactly balance the
hope of gain and fear of loss by one of the parties. This same margin
for higgling appears in most exchanges between two somewhat isolated
traders, even in highly developed business.
The effect that duplicate and additional
units of a good have on valuation (principle of diminishing
gratification) is the most frequent cause of barter. The owner, in
accordance with the principle of substitution, seeks to trade some of
his stock of a good (those units which correspond to less intense,
direct uses) for goods which he lacks entirely or values more highly. A
hunter with a large pack will be glad to trade a part of his furs for a
part of the farmer’s grain and fruit. He thus gives up the satisfaction
of his marginal, less intense desires for furs to gratify his more
intense desires for grain and fruit. But (having meat to eat) he would
not, at any price, trade for food all the furs he has. Thus, when goods
are turned to their trade-uses, new levels of actual valuations for each
of the two kinds of goods result in place of those existing before the
trade.
It should be clear from this chapter that any
true trade must be mutual and voluntary. It thus differs from
gift-making, stealing, extortion, taxation, etc. True trade is of mutual
advantage to the parties, at least is believed to be so at the moment.
It is this which makes trade rational. It is a mode of substituting more
desirable for less desirable goods.
A popular idea very difficult to uproot is
that if one party to a trade gains the other must lose. This idea was
generally held in ancient times and in the Middle Ages, and seems to
have been connected with the notion that value is something fixed in a
good and unchangeable. This seems to have been one reason for the poor
opinion held of merchants, tho the frequency of fraud in trade with
strangers strengthened this opinion. But if goods having a small value
may be given a higher value by being traded, trade and the work of
merchants, peddlers, and carriers of all sorts, may be a
value-increasing process.
Richard E. Lucas
09157274597
/ 09222084500
669 Alden Bldg. Unit 3 2nd
floor
Rizal Extension, Brgy
Cut-Cut
Angeles City, Pampanga
Philippines
