Ch 11 - From Barter to Money7th Social Science

Barter System

• Definition: A system of exchange where goods or services are directly traded for other goods or services without using money.
• Example: Exchanging an extra eraser for a pencil.
• Limitation: It is highly inefficient because it relies on a 'Double Coincidence of Wants'.

Double Coincidence of Wants

• Scenario: For trade to occur, Person A must want exactly what Person B has, AND Person B must want exactly what Person A has.
• Problem: It is statistically very difficult to find such an exact match in large economies (e.g., finding someone who has shoes AND wants your specific ox).
• Result: This primary friction in trade led to the invention of money as a universal intermediary.

Limitations of the Barter System

1. No Common Measure of Value: It is difficult to determine fair exchange rates (e.g., calculating exactly how much wheat equals one pair of shoes).
2. Indivisibility: You cannot divide certain goods like live animals to buy smaller, less valuable items.
3. Lack of Durability/Storage: Perishable goods like grain or vegetables rot over time, making it impossible to store wealth.
4. Portability: Heavy or bulky goods are difficult to transport long distances for trade.