The Story of Money: From a Barter System to a Money System.

I enjoy reading topics on economics. The topic of how barter system economies evolved to money system economies is interesting.

In a barter systems, people exchange goods or services directly for other goods or services that they need or want. When trading in this system people look for others that have a "double coincidence of wants" (you have what the other person wants and the other person has what you want). For example, you have apples and want oranges, the other person has oranges and wants apples. So, you trade apples for oranges, making it a smooth transaction. The problem with a barter system was that you wouldn't always find a person that had a "double coincidence of wants". So, lets go back to the example but, this time you have apples and want oranges and the other person (person "A") has oranges but, want potatoes. In this case you wouldn't be able to trade directly with person "A". You would first have to go to person "B" to buy the potatoes and then go to person "A" to trade the oranges for the potatoes. Sometimes you would have to trade with 3,4,5 or even more people to get the item that you need to trade for the item that you want.



Over time people realized that some goods were more trade-able than other goods. For example, people noticed that salt was trade-able 80% of the time. So, people knew that the majority of the time when they traded with salt they would be able to get what they wanted. People started to buy salt regardless if they needed it or not, because it was highly trade-able. Overtime salt began to be more and more trade-able until it was 100% trade-able. At this time salt was considered to be a currency. A currency can be defined as having all of the following characteristics: 1. a medium of exchange, 2. used to repay debt, 3. used for the purchase of goods and services, 4. and is widely accepted. There has been many types of currencies over the years such as gold, salt, and even cigarettes in prisons.

In addition to salt, gold has been a currency in many places. Instead of carrying around gold everywhere people went, they would store the gold in a secure location and get a voucher saying how much they have. When they would buy something they would go to the storage place and pickup their gold and then transfer it to the sellers storage place. Then the seller would get a new voucher saying what the new amount was in storage. After awhile people would realize that it is easier to just trade the voucher and not move the gold from one storage place to another. So, instead of cashing in the vouchers and moving the gold, people started to just trade vouchers and the vouchers began to function as currency. This would be a paper currency backed by gold. If the backing by the gold is removed then the paper money is then called a fiat currency.

Well that is the condensed version of the story. And it is important to note that governments arent the ones that create currency, it is buyers and sellers that have created currency through the desire to make life easier. It is something that just came about and wasnt planned. Cool topic.

Watched a show called barter kings. Sounded intresting in theory. But like all reality ahows, it seemed too made for tv. They traded an Elvis gold record valued at 250$ for a dirtbike valued at 1300$. They bartered a 70$ used laptop for a vintage amp valued at 10x that. Where are these people?

Originally Posted by jbravo54

fiat currency or better yet, monopoly money. interesting rule in the game of monopoly...if the bank runs out of money, use any piece of paper to make more currency. this is true in our world today.

Yes it is just paper and the only reason it works is because we see everyday that people accept it. There is a breaking point where if there are too many dollars in circulation the people will start to reject the currency. According to the economist Max Faber, when set to infinity, the dollar equals zero.

Originally Posted by submarinepainter

I find your post very interesting !!! Here in Maine there is an underground system of barter , I often barter for items I need !

Have you found some items that are more trade-able than other that you trade for regardless if you want it or not? I find that many apple products are highly trade-able, ipods and iphones, and you can trade them with just about anyone.

Sometimes people will make unfair trades like that because they view the transaction cost of selling the item and finding a buyer to be really high so they settle for a much lower price.

Sometimes people have no idea of the value of an item they are no longer using. I see this at garage sales all the time. I think the US really needs to re-think the policy of flooding the market with new money. Remember what happened to Mexico when they tried that, the hit that their people took when the peso was de-valued was huge.

Here in Pittsburgh we have Green Apple and Pitsburgh Barter. You join and it is like a credit card. Businesses join and the parent company keeps the transaction record. I sell a hard drive to (A), get credits and buy a pizza at (B). For this service you pay tax, plus 5% in and 5% out. You should all look into it. Computers go like hot cakes especially laptops and youll get top dollar.

GREEN APPLE BARTER SERVICES

Check it out.

Governments started currency actually. An old king put his symbol onto a lump of naturally occuring gold/silver amalgum making it legal currency in his kingdom (it was also weighed so each lump was the same as the others).

The barter system was around as long as humans were around. I would never consider salt as a currency because its value depended on where you live with respect to the sea (by the sea salt was mostly worthless, deep inland it was worth quite a bit since they needed it to preserve meat and fish and it wasn't easy to find). A coin was worth the same throughout the empire and most neighboring empires that traded with it.

The people who worship gold as currency need to remember that 99.9% of circulating coins of the ages were silver or copper/brass and even those were cut up to make smaller currency as needed (or gold dust was used). Only the very wealthy had gold coins for most of the time it was currency. You don't walk up to the Dollar store with a $10,000 bill and expect the girl to make change do you?

Originally Posted by unknownk

Governments started currency actually. An old king put his symbol onto a lump of naturally occuring gold/silver amalgum making it legal currency in his kingdom (it was also weighed so each lump was the same as the others).

The barter system was around as long as humans were around. I would never consider salt as a currency because its value depended on where you live with respect to the sea (by the sea salt was mostly worthless, deep inland it was worth quite a bit since they needed it to preserve meat and fish and it wasn't easy to find). A coin was worth the same throughout the empire and most neighboring empires that traded with it.

The people who worship gold as currency need to remember that 99.9% of circulating coins of the ages were silver or copper/brass and even those were cut up to make smaller currency as needed (or gold dust was used). Only the very wealthy had gold coins for most of the time it was currency. You don't walk up to the Dollar store with a $10,000 bill and expect the girl to make change do you?

I guess the point that I was trying to make was that governments didnt take a barter system and then change it to a money system. The money system was already in place and then the government comes in and stamps someones face on the coin. The government, kingdom, empire, etc. didnt make a plan to go from barter to a money system and then stamp gold coins and tell everyone to use it as a medium of exchange. The people and the economy moved from a barter systems to money system in efforts to make life easier, not the planning of governments. Im just curious, which old king were you referring to.

From what I have read salt has been used in countries like Egypt as a form of currency. Remember a currency is anything that can be used as a 1. medium of exchange, 2. repayment of debt., 3. payment for goods and services, 4. and is widely accepted.

We both agree that gold can be used as a currency and that other metals can be used as a currency as well. There are 1/10 ounce gold coins that value around $200 and yes you probably wouldnt try to buy a hamburger with a gold coin but, it doesnt mean that gold isnt used as a currency. Just curious is the 99.9% that you are referring to quantity of coins or total value of coins?

Thanks for you post.

From what I have read salt has been used in countries like Egypt as a form of currency.

The phrase "worth his salt" is said to have originated in the fact that Roman soldiers were payed with salt.

Originally Posted by Ditchdigger

The phrase "worth his salt" is said to have originated in the fact that Roman soldiers were payed with salt.

Thats cool, ya I dont all the countries that used salt as a currency but, I know there is a list.

Originally Posted by Russell

Watched a show called barter kings. Sounded intresting in theory. But like all reality ahows, it seemed too made for tv. They traded an Elvis gold record valued at 250$ for a dirtbike valued at 1300$. They bartered a 70$ used laptop for a vintage amp valued at 10x that. Where are these people?

If I'm a musician with a spare amp, and I need a computer... would I want the amp or the computer more? If I'm a huge Elvis fan that got injured on his dirtbike and is no longer able to ride.... which would I want more?

Sure I could try and sell it, but then I have to wait for it to sell, then maybe I can make it back in time to buy whatever it is I want...

People have all kinds of reasons for trading stuff for something else that you would deem undervalued.... but that's the great thing about bartering, no one is attached to how many dollars something is worth. It's more of a do i want this over this type of deal....