Markets Places where people exchange goods and services People trade to consume greater variety of goods and services
Markets became larger and production became more specialized. People traded preserved fish, woven fabrics, baskets, game, furs – anything of which they could produce extra through specialization. Direct trade of goods is called barter.
Barter The direct exchange of goods and services Must have double coincidence of wants Results in time costs Resulted in need for a medium of exchange
F i n a l l y, a s m o r e g o o d s w e r e a v a i l a b l e, b a r t e r b e c a m e d i f f i c u l t. It might take a lot of time to find someone who has a blanket to accept your chicken in payment for the blanket. This is called double-coincidence of wants. You might need to trade with others to get something the weaver wants in order to get your blanket.
People began to use items as a medium of exchange. For example, the weaver might sell her rug for salt. The salt is a commodity that is desired by all. It can be used to preserve food or it can be used to buy another good ----as a medium of exchange.
Throughout history many things were used as a medium of exchange. Eventually, they realized that coins worked well for this function. They were valued because of the metal that could be used for other purposes. They could be melted down and changed as rulers changed. They could be saved for later use. This was the first function of money.
Coins were good because they could be saved and used later. This allowed people to save. Our economic and financial system is developing. But, what works better as a medium of exchange and store of value than coins?
Commodity money has intrinsic value of its own. Fiat money is backed by government. The money has no value on its own. Which is gold? Does the US use commodity or fiat money today?
A third function of money is that it can be used like a measuring stick. It helps you to compare the price of two goods.