Australia; the rice for his pudding from the Indies; the corn for his bread from Illinois; the petroleum for his lamp from Pennsylvania; his coffee from Java ; the cotton for his wife's dress from Egypt or Alabama; his knife from Sheffield; the silk of his neck-tie from France.

With each improvement in the means of communication, and the mechanism of circulation, there is an increase in the number of exchanges. It may thus be said that the progress of economic civilisation is measured by the progress of exchange.

CHAPTER II.

SALE AND PURCHASE.

§ 1. Price.

PRICE, in the broadest meaning of the term, is anything which is obtained in exchange for an object. In its usual meaning it is the amount of money which the exchange procures.

A thing's price is fixed by the competition established between those who wish to sell and those who desire to buy it, that is to say by what is called “the law of demand and supply."

The supply of an article is the whole quantity which there is a desire to sell; the demand, the whole quantity which there is a desire to purchase

accompanied by ability to pay. When the supply exceeds the demand, prices fall; when the demand exceeds the supply, prices rise. Much cattle in the market and few buyers, prices fall; little cattle and many buyers, prices rise.

§ 2. Supply and Demand, and the Cost of Production.

The demand for an object is determined by the need for it, or, which comes to the same thing, by the utility of the object for satisfying a need. The supply depends on the abundance or rarity of the object of demand. An object is rare, either because it is difficult or costly to produce, as in the case of a chronometer, or, as in that of the diamond, because nature produces it only in small quantities.

The demand for corn is very strong, since it answers to a need of the first importance. Corn, however, is not dear, because the supply of it is always abundant, owing to the fact that it is not costly to produce. If, however, the supply fails, as it does in a besieged town, people will give everything to obtain corn. It follows that a slight falling off in the crop suffices to cause a great increase in price. This shows that the supply of commodities which can be produced at will depends on the cost of production.

The sum required to cover the expenses or cost of production has been called the "necessary" or "natural" price, and for this reason :-If the current price falls below this necessary price, the producer, finding

himself a loser, ceases to produce it; the commodity becomes more rare, and, as a result, prices rise till they cover the expenses of production. On the other hand, if the current price rises above the cost of production, the exceptional profit of the manufacture attracts fresh capital, and by the increased production prices are made to fall. The current price is sometimes above, sometimes below, the necessary price, but always tends to approach it.

For articles of which the quantity cannot be increased at will a monopoly price is established, which depends solely on the demand. The value of a picture is the price which the competition of picture buyers will force the most eager of them to give; and this because no one can now produce a picture of Rubens at any price.

For objects which can be multiplied, but at an ever-increasing expense, the necessary price will be equal to the outlay on that portion of those objects which shall have cost most to produce. If this outlay were not covered by the selling price, the objects would cease to be made. Let us suppose that the cost of production of coal in some mines is four shillings the ton, and in others seven shillings, the necessary price will be at least seven shillings. Since, if recourse must be had to the less abundant mines owing to the inability of the others to satisfy the demand, it is necessary that the selling price rise sufficiently high to defray the cost of production of this more hardly won coal. The same is the case

with corn, and with everything else which can only be produced in greater quantities at a greater expense. Thus, as we have already seen, the most favoured productive agents, since their produce sells at the same price while the expenses have been less, confer exceptional advantages which give rise to

rent.

§ 3. The Just Price.

In ancient times, and in the Middle Ages, people talked of a just price, justum pretium, that is to say, of a price proportionate to the value of the object. The only equitable basis of exchange must be the equality of value of the objects exchanged. If for 41. I give a heifer worth 87. I lose by the bargain, and whoever buys the heifer is enriched at my expense. When the loss incurred exceeded half the value, the Roman law permitted the sale to be rescinded, and the French code has sanctioned the same principle. Plato condemns those who try to sell corn at more than its value, by concealing the fact of a ship's arrival which will diminish its price, and St. Augustin blames those whose only thought is to sell dear and buy cheap, vili velle emere et caro vendidere (De Trinit. xiii. 3).

Modern economists do not admit the conception of a just price. According to them the price accepted by the two parties is always just. The reason of this is that they derive justice from convention, while in reality convention must conform itself to justice.

From this latter principle result the maxims of practical uprightness which are accepted by all honest tradesmen; it is always a duty to "give good money's worth," and to refrain from indulgence in deceit as to the quality of goods.

§ 4. Usefulness of Fairs and Exchanges.

Since price is the result of the relation established between the demand and the supply, the best way of fixing prices is to put all those who respectively supply and demand into communication. This is the function of fairs and exchanges. Individually I have no means of knowing how much I can obtain for the sack of barley I have just harvested; hence isolated sales are accompanied by endless argument. When once, however, all who wish to sell their corn and all who wish to buy it, meet in one place; out of their competition will immediately result a current price, and enormous transactions will then be easily effected in a few minutes.

Exchanges and fairs are thus institutions which have as their aim and result the better application of the law of demand and supply.