The economy is basically supply-demand (lah-duh).

Farmer has an extra bushel of grain in his granary. The town to the north needs grain after disease kills off a couple fields of their grain. The farmer goes north, and barters for the grain.

Merchants are farmers who grow needed item (grain),but don't stockpile, instead they sell it at large. One town always needs grain, so you sell your crops there, bartering for something in return. You then barter that for grain elstwhere, at a profit.

Bartering gives way to buying and selling with a certain item. Gold is precious commodity, worth the same to all men in the nation. The gold replaces the bartering, allowing the merchant to accumulate more wealth to expand his crops and the amount he could sell.

The gold is sold for a certain amount of something, that fluxes on the amount needed and amount available.