Coincidence of Wants Problem
The natural human inclination to trade goods to improve one’s life runs into a problem: lack of coincidence of wants.
Beyond the scale of a small tribe exchanging very small number of primitive goods, impossible to have direct exchange. Nothing larger than a small tribe with very few goods can ever have an economy built on barter.
Humans search for solutions to these problems, and the most obvious solution is to buy something else and exchange it for the thing you want. Indirect exchange.
Humans will look for things to buy in order to exchange for the things that they want.
Some economic goods are more suitable than others. The more suitable a good is to being exchanged, the more marketable or saleable it is.
What makes for a good medium of exchange is what makes for a good solution for the coincidence of wants problem.
| Lack of coincidence of wants across: | Solution: | |
|---|---|---|
| Goods: | Not the same good. | One |
| Time: | I want to sell something today but I want to buy something in the future. | Durable |
| Scale: | I want to sell something large and only buy something small. | Homogenous, Divisible, and groupable |
| Space: | I want to sell something in one location and buy something elsewhere. | Transportable |
“Tending to increase the marketability of a commodity are its demand for use by more people, its divisibility into small units without loss of value, its durability, and its transportability over large distances.”
Carl Menger
Choices will quickly focus on the few most marketable commodities available.
Demand for goods as medium of exchange on top of use demand increases their marketability. Also increases its price.
As the more marketable commodities in any society begin to be picked by individuals as media of exchange, their choices will quickly focus on the few most marketable commodities available.
“A commodity that comes into general use as a medium of exchange is defined as being a money. It is evident that, whereas the concept of a “medium of exchange” is a precise one, and indirect exchange can be distinctly separated from direct exchange, the concept of “money” is a less precise one.”
Murray Rothbard
“Money is not an invention of the state. It is not the product of a legislative act. Even the sanction of political authority is not necessary for its existence. Certain commodities came to be money quite naturally, as the result of economic relationships that were independent of the power of the state.”
Carl Menger
Money existed long before governments. Governments did not make gold money. Governments had to use gold in their coins in order to get their coins accepted for trade.