The Coincidence of Wants

For a barter trade to happen, both people must want what the other has — at the same moment. Economists call this the double coincidence of wants, and it is the single biggest reason barter can’t scale.

A double coincidence

It isn’t enough that you want my chicken. I also have to want your shoes, right now, and we have to agree the chicken and the shoes are worth roughly the same. Both wants must coincide — hence “double”. Miss any one condition and the trade fails.

“The cobbler wants bread; the baker wants a candlestick; the candlestick-maker wants shoes. No two of them can trade — yet a chain of three could, if only something let value pass from hand to hand.”

How money dissolves the problem

A commonly accepted good breaks the double requirement into two easy single ones. Instead of needing one person who both has what you want and wants what you have, you make two trades:

1. Sell what you have to anyone, for the common good.
2. Buy what you want from anyone, with the common good.

You never again need the other side to want your specific goods. You only need them to accept money — and they will, because they know everyone else accepts it too. This is why money is often called a medium of exchange: it sits in the middle of trades so wants no longer have to line up.

So what makes a good money?

If society is going to converge on one good to escape the coincidence of wants, some goods are obviously better candidates than others. Grain rots; cattle can’t be divided; rocks are everywhere. Over thousands of years, humans discovered — by trial and error — a specific set of properties that make one good hold up as money. Those properties are next.