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With a deep passion for learning and knowledge, Chris is an avid enthusiast of mathematics, computer science, physics, philosophy of mind, and economics.
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Article: The origin of Money 5-12-2005
What is Money? Part I: The origin of Money
Money exists as a convenience tool to solve the main problem associated with barter.
This problem is that not everybody is going to want to trade with you.
This problem has a name. It is called the "Double Conincidence of Wants". This
problem can be generalized as the problem of finding someone who both happens
to have what you want and also happens to want what you have.
Money "does not grow on trees"...like cars or televisions, it is created by people,
and like cars or televisions, there must have been a time when money did not exist.
Imagine you live back in those times. Imagine that money does not exist, but
baseball and baseball cards do.
Imagine you want one of Bob's baseball cards and all you have is apples.
If Bob does not want any apples, no trade can take place.
To overcome this problem, you have to find out what Bob DOES WANT. You must then
fine someone who both happens to have what Bob wants and also happens to want apples.
(In other words, you must meet the condition of a double coincidence of wants, but
with someone other than Bob). You can then trade some of your apples for the item
Bob wants, and then trade with Bob for his baseball cards.
This process of trading for things you don't want so that you can ultimately trade
for what you do want is called "Indirect Exchange".
As you might imagine, this can take alot of time and effort, and it will not take long
before people begin searching for items that are universally accepted in trade
by Everybody. When this item is discovered, Money is born.
This money is also known as "Commodity Money" because it is nothing more than a
tangible, physical good that people had been using in their daily lives all along.
To learn about the origins of banking, and how paper money originates from commodity
and banking, click here
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